The Central Board of Direct Taxes (CBDT) has clarified that the pension received by a taxpayer from his former employer is taxable under the head Salaries. The Finance Act, 2018 has amended Section 16 of the Income-tax Act, 1961(the Act) to provide that a taxpayer having income chargeable under the head Salaries shall be allowed a deduction of Rs 40,000/- or the amount of salary, whichever is less, for computing his taxable income. Accordingly, any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of Rs 40,000/- or the amount of pension, whichever is less, under Section 16 of the Act.
Earlier, the representations were received seeking clarification as to whether a taxpayer, who receives pension from his former employer, shall also be eligible to claim this deduction.
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