Commuted pension or lump sum received may be exempt in certain cases. For a government employee, commuted pension is fully exempt.

Uncommuted pension or any periodical payment of pension is fully taxable as salary. In the above case Rs 9,000 received by you is fully taxable. Rs 10,000 starting the age of 70 yrs are fully taxable as well.

For a non-government employee, it is partially exempt. If gratuity is also received with pension – 1/3rd of the amount of pension that would have been received if 100% of the pension was commuted is exempt from commuted pension and remaining is taxed as salary. And in case only pension is received, gratuity is not received – ½ of the amount of pension that would have been received if 100% of the pension was commuted is exempt.

Pension received by a family member though is taxed under income from other sources in the income tax return. If this pension is commuted or is a lump sum payment it is not taxable. Uncommuted pension received by a family member is exempt to a certain extent. Rs 15,000 or 1/3rd of the uncommuted pension received -whichever is less is exempt from tax.

Pension that is received from UNO by its employees or their family is exempt from tax.Pension received by family members of Armed Forces is also exempt.