The deadline for filing Income Tax Returns (ITR) for the financial year 2024–25 was originally July 31, 2025. However, the Central Board of Direct Taxes (CBDT) has now extended it to September 15, 2025. Many taxpayers still have questions about the taxability of retirement-related benefits. Are Provident Fund (PF), gratuity, or pension taxable for salaried taxpayers, especially those nearing retirement? Here are the answers to all your questions.
Is Provident Fund(PF) Taxable?
Provident Fund (PF) is generally not taxable if withdrawn after completing 5 years of continuous service. However, if withdrawn before 5 years, the amount may be taxable as per your income slab. Also, the interest earned on the PF is tax-free up to a certain limit, subject to specific conditions.
Taxability depends on factors such as duration of service, type of employer, and amount contributed. Government employees do not have to pay any tax on the PF money they get when they retire. For non-government employees, the PF money is tax-free only if they have worked for the same employer for at least 5 years without a break.
As per the Income Tax Department, “No exemption shall be available for the interest income accrued during the previous year in the recognised and statutory provident fund to the extent it relates to the contribution made by the employees over Rs 2,50,000 in the previous year.”
If the employer has not contributed to the PF, and the interest earned on the employee’s own contribution is more than Rs 5,00,000 in one year, then the extra interest amount will be taxable.
Gratuity:
Gratuity is an important retirement benefit, but its tax treatment depends on the type of employment. For government employees, gratuity is fully exempt from income tax. However, for non-government employees, gratuity is exempt from tax only up to certain limits specified under the Income Tax Act. Beyond these limits, it may be taxable.
Pension Income: Fully Taxable or Partially Exempt?
Pensions are generally treated as income and will have tax, though there can be certain relaxations based on type and conditions:
Uncommuted Pension (Monthly Pension):
This is treated as salary income and is fully taxable as per applicable slab rates.
Commuted Pension (Lump Sum):
Government employees do not have to pay any tax on the full amount of gratuity
For non-government employees:
If they get gratuity, one-third of their commuted pension is tax-free.
If they don’t get gratuity, half of their commuted pension is tax-free.
Family Pension (To Legal Heirs):
The pension is taxed as “Income from Other Sources.”
You can reduce your taxable pension by Rs 15,000 or by one-third of the pension amount- whichever is less.
Standard Deduction for Pensioners:
Under the old tax regime, pensioners drawing monthly pensions are eligible for a standard deduction of Rs 50,000.
ITR Date Extended
The last date to file income tax returns for FY 2024-25 has been extended to September 15, 2025. Previously, the deadline was July 31, 2025. Taxpayers are advised to file their returns early to avoid a last-minute rush and late fees.
Government employees enjoy wider tax exemptions on their retirement benefits compared to private sector employees. Those working in the private sector must pay close attention to exemption limits and the length of their service to understand their tax liabilities. Staying informed about the latest tax rules is essential to ensure accurate filing of income tax returns and to avoid any penalties.
