Family pension is defined as a regular monthly amount that an employer will pay to a person who belongs to the family of the employee in the event of the death of the employee. There is an underlying difference between a pension and a family pension. Pension is paid to an employee when he is still alive whereas family pension is paid to a nominee or heir of the employee when the employee is no more alive.
Family Pension is the grant provided to the family of a Government employee in the event of his in-service death. It is also provided after the retirement of the deceased employee if he was on the date of death in receipt of a pension or compassionate allowance.
Who are eligible to obtain a family pension?
According to the Government rules till 2004, the family pension would be received by the spouse of the deceased Government employee. However, after the death of the spouse, the family pension could be received by the dependent son or daughter of the deceased employee and they should be below 25 years of age. There would be an end to the family pension once the parents or spouse have passed away and none of the children is eligible for obtaining the pension i.e. either they have been married away or are above 25 years of age.
However, there have been certain amendments in the laws related to eligibility for family pensions. With the new changes in the law, now the dependent parents and widowed, divorced or unmarried daughters can be included in the definition for the family to obtain a family pension. In this case, the dependent parents will receive the family pension till death and the widowed/divorced/unmarried daughter will receive the family pension till marriage or re-marriage. Moreover, suppose a deceased Government employee has been legally separated from his spouse and they have children, then, in this case, the spouse is eligible to obtain a family pension if the children deny their eligibility for obtaining a family pension.
In the case of handicapped children of a deceased Government servant, there are certain provisions for awarding family pension. If the son or daughter of the deceased Government servant is physically or mentally disabled, then he or she can receive the family pension for a lifetime. However, the family pension for a handicapped daughter will be stopped once she gets married. The handicapped son or daughter will be receiving their family pension through a legal guardian.
There are also provisions for granting a family pension to a posthumous child i.e. a child born after the death of his biological parent or for children from a void marriage.
In case, there is the death of the family pensioner then the family pension and all arrears would be payable to the succeeding eligible family member i.e. the next eligible family member in line. However, there might be scenarios where there is no eligible member for receiving the family pension. In such a case, the person who would claim the family pension needs to provide a succession certificate.
Family Pension is taxed under the head "Income from other sources". Only uncommuted family pension is taxable. If the family pension is commuted i.e. lump sum amount is received then the same is not taxable.
Family pension paid as regular monthly income (uncommuted pension) by the employer to a family member of an employee in the event of his/her death. Family pension is taxable after allowing an exemption of 33.33% or Rs. 15000, whichever is less.
For example, a family member receives a monthly pension of Rs. 50,000/-. So the exemption will be Rs. 15,000/- [lower of Rs. 15,000/- or Rs. 16,665/- (Rs. 50,000*33.33%)]. Thus, the taxable family pension will be Rs. 35,000/- (Rs. 50,000 - Rs. 15,000).
Family pension to the family of armed forces personnel including paramilitary forces is not taxable where the death of such person has occurred in the course of operational duties.
Commuted and Uncommuted Pension
Usually, a family pension is awarded to the family members of the deceased Government servant in a periodical manner i.e. monthly. But, if the receiver of the pension opts for obtaining the family pension in a lump sum manner rather than periodical it is known as the Commuted Pension. The major benefit of getting a pension commuted is that you get a lump sum amount which can be used according to your requirements and also you can avail tax benefits. The family pension when paid monthly is known as an un-commuted pension.
Family Pension Exemption
An un-commuted pension is completely taxable as that of the salary of a person.
The commuted pension can be exempt from taxes in certain conditions. If the employee is a Government servant, then a commuted pension is exempt. In the case of a non-Government employee, the commuted pension is partially exempt.
If the gratuity is received along with the pension, then 1/3rd of the pension amount that would have been received in case the entire pension was commuted is tax exempted and the remaining portion is taxable. Suppose, the only pension is being received and no gratuity; then ½ of the amount of pension that would have been received if the entire pension was commuted tends to be tax exempted.
Let us go through another simple example to understand taxability and tax exemption on the family pension.
As said earlier, at the time of retirement you can choose to get a particular percentage of your pension as an advance in the form of a Commuted pension. Let's say suppose, at the age of 60 you have made up your mind to receive 10% of your pension which you received monthly in advance for 10 years which is worth Rs.10, 000. So, you will be obtaining this amount as a lump sum amount. So, your Commuted pension can be calculated as 10% of 10000x12x10=Rs.1, 20,000. In this case, now you will receive your un-commuted pension i.e. Rs.9000 for the upcoming 10 years. After 10 years, when you are 70 years of age you will again start receiving Rs.10, 000 as a pension.
As per the rules of taxation, the un-commuted income of Rs.9,000 which you will receive for the upcoming 10 years is completely taxable and the pension which you will receive after 10 years i.e. Rs.10,000 is also fully taxable.
Hence, the family pension scheme is a Government welfare scheme for the people of the nation. There are quite a lot of rules and regulations associated with the family pension scheme and there have been amendments made to these laws for the further welfare of the general public.
- Who is eligible to obtain the family pension for the minor children of a deceased Government employee?
The guardian of the children is eligible to submit the claim for family pension on behalf of the children.
- Enhanced Family Pension is payable up to what extent?
Enhanced Family Pension will be payable till the pensioner is 67 years of age or after 7 years of the death of the pensioner, whichever comes first.
- Suppose, a Government employee dies during deputation; then who will authorize his family pension?
The Head of the Department who has sent the employee or sanctioned the deputation needs to authorize the Family Pension.