What is a Family Pension?

Family pension is calculated based on the employee's basic pay at the time of service. In case the salary amount tends to vary every month, then the average basic pay of the past 10 months is considered for pension calculation.

If a government employee dies during service, their family pension is typically fixed at 50% of the last drawn basic pay for the first 10 years. After this period, it is paid at 30% of the last drawn basic pay.

In case the pensioner, or the beneficiary of the family pension, passes away, the pension is paid to the next eligible beneficiary at an enhanced rate of 50% of the last drawn pay for the first 7 years. After that, it is paid at 30% of the last pay drawn. Alongside, life insurance may be used to complement a family pension by providing extra financial support in difficult times.

To choose the best pension plan, it is necessary to understand different forms of family pension, as each has specific financial needs and objectives. Family pensions are broadly divided as follows:

In the family pension provisions, the pensioner must nominate a beneficiary who will receive the pension upon their demise. The eligibility criteria may vary based on the beneficiary's relationship to the deceased employee and may have specific rules:

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.

If a widowed daughter wants to claim a family pension, she should be 25 years of age or up to her marriage/re-marriage date or should be earning her livelihood, whichever is earlier.

Suppose the son of a government servant is suffering from any disorder or disability in mind or is physically crippled or disabled so that he cannot earn a living. In that case, the family pension will be payable to such a son throughout his life. The main thing to note is that the family pension to a child suffering from a disability or disorder of mind is paid through a legal guardian.

Difference Between Pension and Family Pension

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-

• Commuted pension: Payment of the pension as a lump sum amount.
• Uncommuted pension: Pension income is paid monthly.

A family pension is a periodic payment made by an employer to an eligible family member of a deceased employee. It is to ensure the continued financial support even after the employee’s demise during their service period.

From a taxation perspective, any family pension received by a beneficiary is treated as ‘Income from other sources’ under Section 56(2) of the Income Tax Act. However, a standard deduction on Section 57(iia) provides relief. The concession granted is one-third of the pension earned or ₹15,000 per annum.

After this deduction, the remaining amount is taxable at the relevant income tax slabs. The taxpayer should report this income under the correct head when filing their return. Additionally, the choice of the ITR form should be based on the total income and eligibility requirements.

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.

Claiming a family pension is a simple process and ensures that dependants continue to receive financial support like a well-structured investment plan designed for long-term security.
Check out the points given below:

• The beneficiary or qualified family member needs to visit the bank where the pension is credited. They must provide the pensioner's death certificate, as well as the relevant portion of the Pension Payment Order (PPO).
• If the claimant does not have an existing joint account with the pensioner, they must open a new bank account to receive pension payments.
• However, if the pensioner and beneficiary had a joint account, they could submit the death certificate along with a written request to activate the family pension.
• The beneficiary needs to provide the valid Know Your Customer (KYC) documents, including identity and address proof, as requested by the bank.
• The bank will note the date of death in its system and activate the family pension in favour of the qualified beneficiary.
• The bank will note the date of death in its system and activate the family pension in favour of the qualified beneficiary.