ANNUITY OR PENSION

Annuity or Pension

Meaning of Annuity
As per the definition, ‘annuity’ is treated as salary. Annuity is a sum payable in respect of a
particular year. It is a yearly grant. If a person invests some money entitling him to series of
equal annual sums, such annual sums are annuities in the hands of the investor.

• Annuity received from a present employer is to be taxed as salary. It does not matter whether it is paid in pursuance of a contractual obligation or voluntarily.
• Annuity received from a past employer is taxable as profit in lieu of salary.
• Annuity received from person other than an employer is taxable as “Income from other sources”.

Pension

Concise Oxford Dictionary defines ‘pension’ as a periodic payment made especially by
Government or a company or other employers to the employee in consideration of past service
payable after his retirement.

Pension is of two types: commuted and uncommuted.
• Uncommuted Pension: Uncommuted pension refers to pension received periodically. It
is fully taxable in the hands of both government and non-government employees.

• Commuted Pension: Commutation means inter-change. Commuted pension means
lump sum amount taken by commuting the whole or part of the pension. Many persons
convert their future right to receive pension into a lumpsum amount receivable
immediately.