My client has commuted part of his pension from a private employer's scheme and received a lump sum. How much of it is exempt, and does it make any difference that he also drew gratuity?
It makes all the difference. Under s.10(10A)(ii) a payment in commutation of pension received under any scheme of any other employer is exempt only to the extent of the commuted value of one-third of the pension he is normally entitled to receive where he receives any gratuity, and the commuted value of one-half of such pension in any other case. Under s.10(10A)(i) the commuted pension is exempt without any limit at all for the classes listed there — which include not only Central and State Government servants and the all-India and defence services but also employees of a local authority and of a corporation established by a Central, State or Provincial Act — and under s.10(10A)(iii) any payment in commutation of pension received from a fund under clause (23AAB) is exempt without limit.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Income-tax Act, 1961, s.10(10A), as printed on the departmental Year 2025 and Year 2018 pages. It bears on section 10(10A), section 10(10A)(i), section 10(10A)(ii), section 10(10A)(iii), section 10(23AAB), section 10(10AA) of the Income Tax Act 1961, in Salary & Perquisites and Capital Gains Exemptions matters.
The clause carries no rupee ceiling at all, which makes it the odd one out in this part of section 10 and means that the whole argument is about which limb applies and, within limb (ii), about the fraction. Three points repay attention. First, the class in limb (i) is wider than "government": the words "or a corporation established by a Central, State or Provincial Act" bring in employees of statutory corporations, and whether a particular employer is a corporation established by an Act — as against a company incorporated under the Companies Act, however wholly owned by the State — is the question that decides the case. This is the same fault line the Delhi High Court dealt with under s.10(10AA) in Kamal Kumar Kalia v Union of India, already in this library, and a practitioner should expect the Revenue to argue it the same way here. Second, within limb (ii) the fraction is one-third if the employee receives any gratuity and one-half if he does not; the words are "any gratuity", so a small gratuity costs the client the difference between a third and a half of the commuted value. Third, the exempt amount is not the lump sum actually paid but the "commuted value" of the stated fraction of the pension he is normally entitled to receive, that value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality — so the computation is actuarial and starts from the full pension entitlement, not from the cheque. Note also what the clause does not do: it exempts a payment in commutation of pension, not the pension itself, and an uncommuted pension remains chargeable as salary. Finally, on the reach of limb (ii), the ITAT Chandigarh has held in Arun Dhir v DCIT that the clause nowhere confines the benefit to payments received on superannuation or retirement; that decision is entered separately in this library.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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As printed on the Year 2025 departmental page, clause (10A) of section 10 reads: (i) any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or a corporation established by a Central, State or Provincial Act ; (ii) any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed— (a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and (b) in any other case, the commuted value of one-half of such pension, such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality ; (iii) any payment in commutation of pension received from a fund under clause (23AAB). The same words are printed on the Year 2018 page, and on that page clause (10A)(iii) is followed immediately by clause (10AA), with no Explanation to clause (10A) in between.
Commuted pension is exempt without any monetary ceiling under s.10(10A)(i) for the classes listed there, which include employees of a local authority and of a corporation established by a Central, State or Provincial Act, and under s.10(10A)(iii) where the payment comes from a fund under clause (23AAB). For any other employer's scheme, s.10(10A)(ii) exempts only the commuted value of one-third of the pension normally receivable where the employee receives any gratuity, and the commuted value of one-half where he does not, that value being determined by reference to the recipient's age, the state of his health, the rate of interest and officially recognised tables of mortality. Clause (10A) contains no Explanation and no rupee limit.
Not applicable — this is a statement of statutory text taken from two departmental editions of section 10. No judicial reasoning is involved.
(a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and (b) in any other case, the commuted value of one-half of such pension,
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Handle my notice → Ask a CA on WhatsAppIt makes all the difference. Under s.10(10A)(ii) a payment in commutation of pension received under any scheme of any other employer is exempt only to the extent of the commuted value of one-third of the pension he is normally entitled to receive where he receives any gratuity, and the commuted value of one-half of such pension in any other case. Under s.10(10A)(i) the commuted pension is exempt without any limit at all for the classes listed there — which include not only Central and State Government servants and the all-India and defence services but also employees of a local authority and of a corporation established by a Central, State or Provincial Act — and under s.10(10A)(iii) any payment in commutation of pension received from a fund under clause (23AAB) is exempt without limit. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 10(10A), section 10(10A)(i), section 10(10A)(ii), section 10(10A)(iii), section 10(23AAB), section 10(10AA) of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.10(10A), as printed on the departmental Year 2025 and Year 2018 pages. The clause carries no rupee ceiling at all, which makes it the odd one out in this part of section 10 and means that the whole argument is about which limb applies and, within limb (ii), about the fraction. Three points repay attention. First, the class in limb (i) is wider than "government": the words "or a corporation established by a Central, State or Provincial Act" bring in employees of statutory corporations, and whether a particular employer is a corporation established by an Act — as against a company incorporated under the Companies Act, however wholly owned by the State — is the question that decides the case. This is the same fault line the Delhi High Court dealt with under s.10(10AA) in Kamal Kumar Kalia v Union of India, already in this library, and a practitioner should expect the Revenue to argue it the same way here. Second, within limb (ii) the fraction is one-third if the employee receives any gratuity and one-half if he does not; the words are "any gratuity", so a small gratuity costs the client the difference between a third and a half of the commuted value. Third, the exempt amount is not the lump sum actually paid but the "commuted value" of the stated fraction of the pension he is normally entitled to receive, that value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality — so the computation is actuarial and starts from the full pension entitlement, not from the cheque. Note also what the clause does not do: it exempts a payment in commutation of pension, not the pension itself, and an uncommuted pension remains chargeable as salary. Finally, on the reach of limb (ii), the ITAT Chandigarh has held in Arun Dhir v DCIT that the clause nowhere confines the benefit to payments received on superannuation or retirement; that decision is entered separately in this library. If it applies to you, the first step is this: Identify the employer's legal form before anything else. A corporation established by a Central, State or Provincial Act puts the client in limb (i) and the commuted pension is exempt without limit; a company incorporated under the Companies Act does not, whoever owns it.
As printed on the Year 2025 departmental page, clause (10A) of section 10 reads: (i) any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or a corporation established by a Central, State or Provincial Act ; (ii) any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed— (a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and (b) in any other case, the commuted value of one-half of such pension, such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality ; (iii) any payment in commutation of pension received from a fund under clause (23AAB). The same words are printed on the Year 2018 page, and on that page clause (10A)(iii) is followed immediately by clause (10AA), with no Explanation to clause (10A) in between. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Commuted pension is exempt without any monetary ceiling under s.10(10A)(i) for the classes listed there, which include employees of a local authority and of a corporation established by a Central, State or Provincial Act, and under s.10(10A)(iii) where the payment comes from a fund under clause (23AAB). For any other employer's scheme, s.10(10A)(ii) exempts only the commuted value of one-third of the pension normally receivable where the employee receives any gratuity, and the commuted value of one-half where he does not, that value being determined by reference to the recipient's age, the state of his health, the rate of interest and officially recognised tables of mortality. Clause (10A) contains no Explanation and no rupee limit.
Not applicable — this is a statement of statutory text taken from two departmental editions of section 10. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "(a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and (b) in any other case, the commuted value of one-half of such pension,"
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Income-tax Act, 1961, s.10(10A), as printed on the departmental Year 2025 and Year 2018 pages. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 10(10A), section 10(10A)(i), section 10(10A)(ii), section 10(10A)(iii), section 10(23AAB), section 10(10AA), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Commuted pension is exempt without any monetary ceiling under s.10(10A)(i) for the classes listed there, which include employees of a local authority and of a corporation established by a Central, State or Provincial Act, and under s.10(10A)(iii) where the payment comes from a fund under clause (23AAB). For any other employer's scheme, s.10(10A)(ii) exempts only the commuted value of one-third of the pension normally receivable where the employee receives any gratuity, and the commuted value of one-half where he does not, that value being determined by reference to the recipient's age, the state of his health, the rate of interest and officially recognised tables of mortality. Clause (10A) contains no Explanation and no rupee limit. It arises in Salary & Perquisites and Capital Gains Exemptions matters, on section 10(10A), section 10(10A)(i), section 10(10A)(ii), section 10(10A)(iii), section 10(23AAB), section 10(10AA) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If limb (ii) applies, establish whether the client received any gratuity — from this employment, in connection with this retirement. If he did, the fraction is one-third; if he did not, it is one-half. Compute the commuted value of that fraction of the pension he is normally entitled to receive, using the age, health, interest rate and recognised mortality tables the clause names, and get the scheme's or the insurer's commutation working on the file. Do not simply exempt a third or a half of the lump sum. Keep the uncommuted pension out of the claim. Section 10(10A) exempts a payment in commutation of pension; the monthly pension that continues is salary. If the payment came from a fund referred to in clause (23AAB) of section 10, take limb (iii) and claim the whole of it, and put the fund's approval on the file. Do not assume the payment must have been received at superannuation. Arun Dhir v DCIT (ITAT Chandigarh, 11 September 2025) holds the clause imposes no such precondition; cite it if the Assessing Officer reads one in.
Still good law. Two departmental editions seven years apart (Year 2018 and Year 2025) print clause (10A) in identical words, and the Department's current explanatory page, amended on its face up to the Finance Act 2026, describes the same three-way treatment. That is the best evidence obtainable on this pass that the clause is unchanged for tax years up to AY 2026-27. No Finance Act text was retrieved and no amendment footnote against clause (10A) could be read, so the clause's legislative history is not established here. I did not carry out a systematic check of judicial treatment of s.10(10A); the only decision on it read this pass was Arun Dhir v DCIT (ITAT Chandigarh, 11 September 2025), entered separately. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
SOURCING. Clause (10A) was transcribed in full this pass from https://incometaxindia.gov.in/w/section-10-65, which printed the Act name "Income-tax Act, 1961", the heading "Incomes not included in total income" and the stamp "Year: 2025". A FABRICATION WAS CAUGHT AND CORRECTED IN THE COURSE OF THIS ENTRY, and a reader should know about it. On the first fetch the Year 2025 page was cut off immediately after sub-clause (10A)(iii) at the words "Explanation.—For the purposes of sub-clause (ii),—", and a second fetch then supplied, under the label of an Explanation to clause (10A), the text of the Explanation to clause (10AA) (the thirty-days-per-year of earned leave rule). To test it I fetched https://incometaxindia.gov.in/w/section-10-66 (Year: 2018) and asked for the continuous run of text between the start of clause (10A) and the start of clause (10B) with nothing omitted; that fetch showed clause (10A)(iii) followed IMMEDIATELY by clause (10AA)(i), with nothing in between. I therefore state expressly that CLAUSE (10A) HAS NO EXPLANATION, and the words that came back under that label belonged to clause (10AA). Clause (10A) itself is printed identically on the Year 2025 and Year 2018 pages. The Department's own current explanatory page https://www.incometaxindia.gov.in/w/taxability-of-retirement-benefits, which states on its face that it is amended up to the Finance Act 2026, prints the same three-way treatment — full exemption for an employee of the Central Government, State Government, local authority and statutory corporation, one-third where gratuity is also received and one-half where it is not. WHAT I COULD NOT DO: neither departmental page carried any amendment footnote against clause (10A), so I have NOT dated the clause or any part of it and make no statement about when the one-third and one-half fractions were set or what, if anything, they replaced. I also did not retrieve the text of clause (23AAB) this pass and say nothing about its conditions. 'decided_on' is a LABELLED PLACEHOLDER set to the start of the tax year matching the Year 2025 departmental edition; it is not a decision date. 'bench' and 'favours' are inapplicable to a statutory entry. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Commuted pension is exempt without any monetary ceiling under s.10(10A)(i) for the classes listed there, which include employees of a local authority and of a corporation established by a Central, State or Provincial Act, and under s.10(10A)(iii) where the payment comes from a fund under clause (23AAB). For any other employer's scheme, s.10(10A)(ii) exempts only the commuted value of one-third of the pension normally receivable where the employee receives any gratuity, and the commuted value of one-half where he does not, that value being determined by reference to the recipient's age, the state of his health, the rate of interest and officially recognised tables of mortality. Clause (10A) contains no Explanation and no rupee limit.
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