Salary and Pension Income Tax: Why Combined Income Can Create Tax Liability

Introduction

Many taxpayers receive pension income after retirement and also continue working in a job. In such cases, both pension and salary income must be reported together in the income tax return.

The important issue is that even if no TDS is deducted separately by the pension department or the employer, tax may still become payable when both incomes are combined. This is a common mistake, and it can lead to additional tax and interest liability.

Main Discussion

In the case discussed, the taxpayer received pension income as well as salary income. This situation is common where a person retires from service, such as from the Army, starts receiving pension, and later joins another job.

The issue arises because each payer looks at income separately.

The pension department did not deduct TDS because the pension income was below ₹12 lakh. Similarly, the company paying salary also did not deduct TDS because the salary income was below ₹12 lakh.

However, while filing the income tax return, the taxpayer cannot report only one source of income. If a person receives income from multiple employers or receives salary as well as pension, all such income has to be reported together.

In the case discussed, the total salary and pension income became ₹13,34,762. Because the combined income exceeded ₹12 lakh, tax became payable.

Under the new tax regime, standard deduction of ₹75,000 was available from salary income. After this deduction, the net income under the salary head was calculated.

The expert explained that rebate under section 87A is available only when the income is within the prescribed limit. If the income crosses ₹12 lakh, the full rebate of ₹60,000 is not available. However, marginal relief may be available where the income has increased only slightly above ₹12 lakh.

In the discussed case, the income exceeded ₹12 lakh by only ₹59,562. Therefore, due to marginal relief, tax was restricted to the amount by which the income exceeded ₹12 lakh, plus education cess at 4%.

The expert explained that although normal tax was coming to ₹68,934, marginal relief was available. Therefore, tax was calculated on ₹59,562, and after adding education cess, the tax liability came to ₹61,944.

This means the taxpayer still had to pay tax because the combined income crossed the rebate limit.

Another important point discussed was advance tax. If the tax payable is more than ₹10,000, the taxpayer is required to pay advance tax. If advance tax is not paid on time, interest becomes payable while filing the return.

In this case, because the taxpayer did not pay advance tax on time, interest was also payable. The expert mentioned that the interest was almost more than ₹4,000, and the total amount payable became around ₹66,300 as on that date.

Practical Impact

This situation is very important for pensioners, retired employees, defence personnel, and salaried taxpayers who have more than one source of salary-like income.

A taxpayer may think that there is no tax liability because no TDS has been deducted. But TDS deduction by the employer or pension department is not the final tax calculation. The final tax liability is calculated after combining all taxable income in the income tax return.

For example, if a retired person receives pension from one department and salary from a private company, both may separately consider the income below ₹12 lakh. Because of this, neither may deduct TDS.

But when the taxpayer files the return, the total income may cross ₹12 lakh. In that case, rebate under section 87A may not be fully available, and tax may have to be paid.

Taxpayers should also check whether advance tax is payable. If tax payable exceeds ₹10,000 and advance tax is not paid, interest may increase month by month.

Therefore, such taxpayers should calculate their total income in advance and pay self-assessment tax or advance tax on time, wherever applicable.

Conclusion

The main lesson from this discussion is that pension and salary income must be combined while filing the income tax return.

Even if no TDS is deducted separately by the pension department and the employer, tax may still become payable if the total income exceeds ₹12 lakh. Taxpayers should not wait until the return filing stage to discover this liability.

Proper calculation, timely tax payment, and advance tax compliance can help avoid unnecessary interest and last-minute burden.

key takeaways

• Pension income and salary income must be reported together in the income tax return.
• No TDS deduction does not always mean there is no tax payable.
• If combined income exceeds ₹12 lakh, full rebate under section 87A may not be available.
• Marginal relief may apply if income increases slightly above ₹12 lakh.
• In the discussed case, income exceeded ₹12 lakh by ₹59,562.
• Tax liability after marginal relief and 4% education cess came to ₹61,944.
• If tax payable exceeds ₹10,000, advance tax provisions become important.
• Failure to pay advance tax on time may result in interest.
• Taxpayers with pension and salary income should calculate tax early and pay timely.

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