Is employer annuity taxed as salary? Here’s how standard deduction applies

Tax rules for annuity received from employer

Many retirees are unsure how annuity income received after retirement is taxed. Here’s a look at when such annuity is treated as salary income and whether it qualifies for the standard deduction.

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I superannuated from a public sector company in March 2025. After my retirement, my employer deposited my superannuation fund with LIC (Life Insurance Corporation of India) to purchase an annuity. Out of that amount, LIC is paying me Rs 10,122 a month as annuity. Under which head of income is this annuity received from LIC taxable? If it is to be taxed under the “salaries” head, can I claim the standard deduction of Rs 50,000 available to all salaried individuals?

My wife has also deposited some money under the Pradhan Mantri Vaya Vandana Yojana (PMVVY) of LIC. Please confirm whether she can also claim the standard deduction of Rs 50,000.

Expert advice: Under the old tax regime, an employee is entitled to a standard deduction of up to Rs 50,000 in a financial year against any income that is taxable under the “salaries” head. If you opt for the new tax regime, a higher amount of Rs 75,000 is available as standard deduction. The standard deduction is available against salary received whether in arrears, in advance, or for the current period. In addition to salary received from the present employer, pension from an ex-employer is also taxable as “salaries".

Therefore, an employee can claim standard deduction against pension income received from a past employer. Any pension that accrues to a person by virtue of their employment whether received directly from the employer or through another source becomes taxable under the “salaries” head. Thus, the taxpayer can claim the standard deduction against such pension income.

Accordingly, pension received by a retired person from the Employees’ Provident Fund Organisation (EPFO) as well as an annuity received from an insurance company in respect of an annuity purchased by the employer for superannuation becomes taxable as “salaries” and entitles the recipient to claim standard deduction. For the reasons mentioned above, the annuity received by you from LIC becomes taxable and entitles you to claim standard deduction.

Please note that any periodic payment received as pension from an annuity not purchased by your employer but by you or any other person, is taxable as “income from other sources” and not “salaries”. Therefore, such income is not eligible for standard deduction.

The annuity earned by your wife under the PMVVY is taxable as “income from other sources”. Hence, she is not entitled to standard deduction.

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