Should Pension Be Made Fully Tax Free?

Why retired bank employees should pay Income tax on pension which they receive after their retirement from service.?

As long as an employee in in service , employer bank  deduct certain portion of salary of an employee  , say 10% of pay, and contribute equal amount of it for credit in Provident Fund account of the employee maintained by Trust. Periodical interest is credited on such PF amount (employee’s contribution as well as bank’s contribution)  as per interest rate fixed by the concerned board or as per guidelines received in this regard from Government of India. 

Here it is important to point out that the total Provident Fund (PF)  amount contributed by employee and the bank as also interest credited in the account is fully exempted from Income tax as long as the employee is in service.  When the employee gets retired , he gets back full amount.  This amount is hard earned by serving the bank for three to four decades and that too after making payment of income tax every year . As such , Interest earned on this accumulated fund payable to an employee after his or her retirement must be fully exempted from income tax because after retirement , it is only interest income on this hard earned fund of an employee, which  helps him in managing family expenses post retirement .

Similarly when an employee surrenders full amount of Provident Fund and opt for pension, the employer bank keep this fund with it and invest it in different debt fund or mutual fund to earn income and then distribute the same in form of  pension ( as per negotiated settlement ) to retired employee. 

Obviously  , this pension amount payable to a retired employee should also be made fully tax free . Government should try to explore other means to raise its resources for social activities. Government on the one hand proposes to give subsidy to unemployed and on the other give pain to who has served it for decades. It is not justified from any angle.

It is very much painful that pension amount which is already very much less than an employee earns in form of salary during working period is taxed. A person who sacrifices his entire life in serving the organization is subjected to burden of Income tax even after his retirement. 

I would like  to say that pension amount should be  made fully tax free and similarly interest earned on amount received by an employee after retirement which includes PF, Gratuity etc should be made tax free . This will be a great help to retired employees in their old age. 

Here it is worthwhile to mention that year after year banks have been forced by various governments to earn less profit by reducing interest rates on deposits so that they may reduce interest on lending so that business men get relief . Interest rates are reduced even on personal loan, car loans , home loans for persons who can afford higher interest rates , all at the cost of  pensioners , senior citizens and old persons whose livelihood depends largely on interest income. 

In my view it is fully unjustified to punish savers and retired persons to give relief to rich class of persons (including high wage earners and high class business men ) who earn high income and who use the loan for luxary and leading life lavishly.

From another angle of consideration I submit view of one of my friend who simply ask why PAY TAX on Bank Employees' Pension? 

Many mutual funds declare Dividend and pay Monthly. The reason is better known if you pay it as interest you have to show as your Income and Pay Income Tax.

It is decided and pronounced as many times that Retired Bank employees Pension is not similar to the Pension paid by the central or State Government.  Employees retired from central government services get their Pension as a charge against the Budget or through Budgetary allocations.

On the other hand , Bank employees Pension is paid out of fund created called Bank employees Pension Fund , which os held with  the  management and controlled by  the trust. The retired employees are paid out of the earnings made on the investment of this fund by the Trustees in Income yielding instruments. So a return is arrived on the Pension Fund. This return on Pension Fund Invested is paid to retired Bank employees in the ratio of their service as negotiated arrangement.

My Point is when it is a return on our fund contributions invested and paid to us intermittantly say Monthly is not Pension as per the definition and the judgements of the various courts but dividend distributed to the members of the fund. As it is in the nature of dividend and dividend distribution in a negotiated manner it is " Dividend" and not absolutely as not salary/ pension as given to employees of central or state government services and hence such dividend which is distributed  in form of pension to bank employees  is eligible for 100% exemption from Income Tax.

 I hope bank employees, their union leaders and management will ponder over it and impress upon government to make pension fully tax free in the hand of pensioners.