What is a Family Pension?

According to the rules laid down by the Department of Pension and Pensioner’s Welfare (DoPPW), there are some guidelines on how the family pension is disbursed to the family members of the Pensioner after their demise.

Here is a step by step guide on how one can claim pension after the death of a pensioner-

1. You have to approach the pension paying bank along with the Pensioner’s half of the PPO (Pension Payment Order) and Death certificate.
2. The manager will tell you everything about the procedure followed in that branch.
3. If the Pensioner has a joint account with the spouse, they will have to submit the death certificate and a simple application to activate the pension. However, if the Pensioner does not have an account, they will have to open a bank account in that branch.
4. The bank will verify the identity of the family members by demanding their Aadhar card, Pan Card and a joint photograph.
5. The bank will update the date of death to activate the pension plan. Half of the Pensioner’s PPO will be returned to the spouse.
6. After completing all the formalities, the bank will intimate the CPPC and start crediting the pension to the family member’s bank account.

As per the rules laid by the Indian government, the family pension shall be calculated at a uniform rate of 30% of basic pay in all cases and shall be subject to a minimum of 3500/-pm and a maximum of 30% of the highest salary in the government.

It is essential to understand your risk-taking ability in terms of age, income source, and more considerable expenses such as a child’s education, loans, and marriage.

When you are nearer to retirement, the focus should be on availing of the benefits from the assets acquired over time. You can enjoy them in the form of a monthly income or a lump-sum amount on retirement.

Family pension received by a family member of the Pensioner is taxed under the category “Income from other sources.” Family pension exemptions on un-commuted pensions are set to a maximum of ₹15,000 or a third of the pension received - whichever is lower.

The primary benefit of the commuted pension is that you get lump-sum amounts. You can then use them based on your needs while claiming tax benefits. When filing their tax returns, family members receiving pension payments must report them under the ‘Any other income earned' in the sources scheduled in Income Tax Return 2 (ITR 2).

There are two types of pensions-

 1. Commuted pension: Payment of the pension as a lump sum amount

 2. Uncommuted pension: pension income is paid monthly

Uncommuted pensions or periodical family pension payments are fully taxable as they fall under their income. Family pension exemptions apply to commuted pensions or lump sums for some cases.

Employees of the government enjoy tax-exempted commuted pensions while non-government employees are partially exempted. A third of the amount is tax-exempted if you get a gratuity with the monthly allowance, while the remaining is part of taxable income. If it is only the monthly pension, then half the amount is tax-exempted. In both cases, it should be 100% of the pension being commuted.