There are several benefits that central government employees receive after retirement; learn more.
Central government employees who are about to retire should know about their retirement benefits, which include financial support, healthcare, and various perks to ensure that they enjoy a worry-free, secure, and comfortable life after they stop working. Here are 8 Benefits That Central Govt Employees Get After Retirement.
Pension Benefits
To be eligible for a pension, central government employees must be on the job for at least 10 years. If they retire as per the pension rules, they are entitled to receive a pension upon completing at least 10 years of service.
If the employee has applied for a family pension, the widow is eligible to receive the pension amount in case of the death of her spouse. However, the employee must complete one year of continuous service. They could be eligible for pension even before completing one year if the employee was examined and declared fit for service by an appropriate medical authority.
Currently, the minimum monthly pension limit is Rs 9,000, and the maximum is 50 per cent of the highest pay scale in central government jobs, presently Rs. 1.25 lakh per month, as per the government’s pensioners’ portal. The employees will continue receiving the pension until death.
In addition, government employees can withdraw up to 40 per cent of their corpus fund contributed under the National Pension System (NPS) in a lump sum at retirement. The rest is invested in annuity schemes for regular cash flows based on the market performance.
Medical Benefits
After retirement, central government pensioners are eligible for the Central Government Health Scheme (CGHS) facilities. CGHS facilities are available in multiple cities. To avail of these services, pensioners and family pensioners must register their names at a CGHS dispensary by submitting a prescribed application for a CGHS identity card.
From AY2021-22, the exemption limit for regular taxpayers is Rs. 2.5 lakh, and for retired individuals who are 60 years and above, it is Rs. 3 lakh. Super senior citizens aged 80 and above enjoy an even higher exemption limit of Rs. 5 lakh. The pension becomes taxable under the “Salaries” income category if it exceeds these limits.
Also, since AY2020-21, individuals can claim a standard deduction of up to Rs. 50,000 on their salary income under section 16 of the Income Tax Act, 1961. It applies to retired employees aged 60 and above who receive pension income from their former employer.
If the expected tax liability for the year is Rs. 10,000 or higher, you must pay advance tax. However, if you're a retired individual aged 60 or above and don't earn any income under “Profits and Gains of Business or Profession,” you are exempt from paying advance tax, according to the Income Tax Department.
Pension Commutation
Payments received from the Civil Pension (Commutation) Rules of the Central Government or similar schemes are tax-exempt. Payments from any other employer's pension commutation scheme are also tax-exempt, subject to the Income-tax Act, 1961 provisions.
Payments from a fund established under Clause 23AAB, such as the one set up by LIC after August 1, 1966, are also exempt from taxes, according to the Income Tax Act. Family pension falls under “Income from Other Sources.” So, when an employer provides an uncommuted pension to a deceased employee’s family member, it is taxable. However, a deduction of 33.33 per cent or Rs. 15,000 is allowed before taxation, whichever is lower, as per the Income Tax Department portal.
Gratuity Benefits
Gratuity received under the Payment of Gratuity Act, 1972, is exempt to the extent it doesn't exceed the amount calculated according to sections 4(2) and 4(3). Any other gratuity received upon retirement or employment termination or received by the deceased employee’s widow, children, or dependents upon their demise is also exempt to the extent provided in Section 10(10) of the Income Tax Act.
Leave Encashment Benefits
Central or state government employees receive tax exemption on the cash equivalent of their earned leave at retirement, whether due to superannuation or any other reason. Other employees can enjoy this exemption for earned leave not exceeding 10 months, based on the average salary received during the 10 months immediately before retirement.
Provident Fund Benefits
Money received from a provident fund is tax-exempt under specific conditions:
If the Provident Funds Act 1925 applies, or the payment comes from a provident fund established by the central government and officially notified in the gazette, it is tax-exempt.
The accumulated balance becoming payable to an employee in a recognized provident fund is exempt to the extent defined in Rule 8 of Part A of the 4th Schedule of the IT Act.
Amounts received from an approved superannuation fund are tax-exempt.
Health Insurance Benefits
Starting AY2020-21, retirees aged 60 and above can claim a maximum deduction of Rs. 50,000 under section 80D for health insurance premiums. The same deduction limit applies to medical expenses for senior citizens by a family member, provided no amount is paid for their health insurance. Payments must be made through non-cash modes to claim this deduction.