The family pension deduction new regime is one of the most overlooked tax benefits available to pensioners today. If you receive a family pension after the passing of a government employee or pensioner, the Indian Income Tax Act gives you a specific deduction to reduce your taxable income. Most people are unaware that this benefit carries forward into the new tax regime, even as many other deductions have been removed. In this guide, we break down everything you need to know so you can claim what is rightfully yours.
Understanding this deduction is not complicated. With the right information, you can save thousands of rupees every year without any additional investment or effort. Let us walk through it step by step.
What Is Family Pension and Who Receives It?
Family pension is the pension received by the legal heir or eligible family member after the death of an employee or pensioner. It is most common in government service, although some private sector employers also provide family pension benefits under their pension schemes.
The recipients are typically:
- The spouse of a deceased government employee or pensioner
- Children of the deceased, subject to age and dependency conditions
- In certain cases, other eligible dependants, depending on the applicable pension rules
Family pension is taxable. Under the Income-tax Act, it is taxed under the head “Income from Other Sources” and not under the head “Salaries.” This distinction is important because it determines the deduction available and the manner in which the income is taxed.
Is Family Pension the Same as Regular Pension?
No. Regular pension is paid to the retired employee, whereas family pension is paid to an eligible family member after the death of the employee or pensioner.
The tax treatment of the two is different. Regular pension received from a former employer is generally taxable under the head “Salaries.” In contrast, family pension is taxable under the head “Income from Other Sources.”
This distinction is important because the special deduction discussed in this article applies only to family pension recipients. It is not available to retired employees receiving their own pension.
The Family Pension Deduction: What the Law Says
Under Section 57(iia) of the Income-tax Act, a person receiving family pension is entitled to a deduction from such income.
The deduction is equal to the lower of:
- One-third of the family pension received, or
- The prescribed monetary limit under the applicable tax regime.
For FY 2025–26 (AY 2026–27):
- Old Tax Regime: Lower of one-third of the family pension or Rs. 15,000 per year.
- New Tax Regime: Lower of one-third of the family pension or Rs. 25,000 per year.
The enhanced limit of Rs. 25,000 for taxpayers opting for the new tax regime was introduced through the Finance (No. 2) Act, 2024 and is effective from 1 April 2025. This provides additional tax relief to eligible family pension recipients under the new tax regime.
The Updated Rule at a Glance
| Tax Regime | Deduction Available | Cap |
|---|---|---|
| Old Regime | 1/3rd of family pension | Rs 15,000 per year |
| New Regime (post Budget 2024) | 1/3rd of family pension | Rs 25,000 per year |
Therefore, if you receive a family pension and opt for the new tax regime, the maximum deduction you can claim has increased from Rs. 15,000 to Rs. 25,000 per year. This additional deduction can reduce your taxable income and provide meaningful tax relief, particularly for family pension recipients who rely on a fixed source of income.
Family Pension Deduction in the New Regime: Why It Matters
The new tax regime, introduced in Budget 2020 and significantly revised in Budget 2023, removed most deductions and exemptions in exchange for lower tax rates. This led many taxpayers to believe that all tax deductions had disappeared under the new regime.
The family pension deduction is an important exception. Unlike deductions under Chapter VI-A, such as Sections 80C, 80D, and 80G, the deduction for family pension is available under Section 57(iia) of the Income-tax Act. It continues to be available to eligible taxpayers under the new tax regime, and from FY 2025–26 (AY 2026–27), the maximum deduction under the new regime has been enhanced to Rs. 25,000 per year (subject to the prescribed limit of one-third of the family pension, whichever is lower).
This makes the family pension deduction one of the few tax benefits that continue to provide meaningful relief under the new tax regime.
Deductions Available in the New Regime
| Deduction | Available in New Regime? | Limit |
|---|---|---|
| Standard deduction on salary | Yes | Rs 75,000 (FY 2024-25) |
| Family pension deduction (Sec 57) | Yes | Rs 25,000 |
| Section 80C (PPF, ELSS, LIC) | No | Not applicable |
| Section 80D (Health insurance) | No | Not applicable |
| HRA exemption | No | Not applicable |
| NPS employer contribution (Sec 80CCD(2)) | Yes | Up to 14% of basic for govt employees |
As a result, for those who switch to the new regime, the family pension deduction becomes even more important as one of the only instruments left to reduce taxable income under Income from Other Sources.
How to Calculate Your Tax Saving: A Practical Example
Let us take a realistic example to understand how the family pension deduction under the new tax regime works in practice.
Example: Mrs. Kavitha, Widow of a Retired Government Officer
Mrs. Kavitha receives a monthly family pension of Rs. 12,000. Her annual family pension income is therefore Rs. 1,44,000.
| Step | Calculation | Amount (Rs) |
|---|---|---|
| Annual family pension received | Rs 12,000 x 12 | 1,44,000 |
| One-third of family pension | 1,44,000 / 3 | 48,000 |
| Cap under new regime | Maximum allowed | 25,000 |
| Deduction claimable | Lower of Rs 48,000 or Rs 25,000 | 25,000 |
| Taxable family pension | 1,44,000 minus 25,000 | 1,19,000 |
In this example, Mrs. Kavitha reduces her taxable family pension by Rs. 25,000 simply by claiming the deduction under Section 57(iia). The actual tax saving depends on her applicable income tax slab. For example, a taxpayer in the 10% tax slab would save approximately Rs. 2,500 in income tax (before health and education cess).
In addition, if Mrs. Kavitha’s total taxable income qualifies for the rebate under Section 87A as per the provisions applicable to the relevant financial year, her overall tax liability may reduce further.
How to Claim the Family Pension Deduction
Claiming the family pension deduction is simple. You do not need to submit any separate application to claim it. Follow these steps while filing your Income Tax Return (ITR):
Step-by-Step Process
- Determine your total family pension income. Collect your annual pension statement, bank statement showing pension credits, or any certificate issued by the pension-disbursing authority reflecting the total family pension received during the financial year.
- Report the income correctly. Declare the family pension under the head “Income from Other Sources” in your ITR, not under the head “Salaries.”
- Claim the deduction under Section 57(iia). Claim the lower of:
- One-third of the family pension received, or
- Rs. 25,000 if you have opted for the new tax regime for FY 2025–26 (AY 2026–27). (Under the old tax regime, the monetary limit continues to be Rs. 15,000.)
- Select the appropriate tax regime. Ensure you have opted for the correct tax regime in your return so that the applicable deduction limit is considered.
- File your return on time. File your ITR by the applicable due date prescribed under the Income-tax Act (unless extended by the Income-tax Department) to avoid interest, penalties, or other compliance issues.
Most ITR filing utilities, including the Income Tax Department’s e-filing portal, automatically compute the deduction once the family pension income is entered correctly. Even so, it is good practice to verify the calculation before submitting your return.
Which ITR Form Should You Use?
For individuals receiving family pension and having no business or professional income, ITR-1 (Sahaj) is generally the appropriate return form, provided you satisfy all the eligibility conditions prescribed for that form, including the applicable income limits and the absence of ineligible income such as capital gains.
If you have capital gains, business or professional income, or any other income that makes you ineligible to file ITR-1, you should generally use ITR-2 or the applicable ITR form based on your specific circumstances.
Common Mistakes to Avoid While Claiming This Deduction
Many family pension recipients either miss this deduction entirely or make errors while claiming it. Here are the most common mistakes and how to avoid them.
Mistake 1: Reporting Family Pension Under Salary Head
Family pension is not taxable under the head “Salaries.” It must be reported under “Income from Other Sources.” Reporting it under the wrong head may result in an incorrect tax computation and the deduction under Section 57(iia) not being allowed correctly.
Mistake 2: Not Claiming the Deduction at All
Many family pension recipients, particularly senior citizens, are unaware that this deduction is available. As a result, they end up paying tax on the entire family pension. If you discover that you missed claiming the deduction, you may be able to rectify the position by filing a revised or updated return, subject to the applicable provisions and time limits under the Income-tax Act.
Mistake 3: Using the Old Cap in the New Regime
For FY 2025–26 (AY 2026–27), the maximum deduction under the new tax regime is Rs. 25,000, not Rs. 15,000. Always ensure that your tax computation reflects the correct deduction limit based on the applicable assessment year and the tax regime you have chosen.
Mistake 4: Claiming Deduction When Not Eligible
The deduction under Section 57(iia) applies only to family pension, that is, periodic pension payments received by an eligible family member after the death of an employee or pensioner. It does not apply to gratuity, provident fund balances, ex gratia payments, or other lump-sum death benefits.
Should You Choose the New Regime If You Receive Family Pension?
This is a question many family pension recipients ask, and the answer depends on your overall income, deductions, and tax profile. While the new tax regime offers lower tax rates, it removes most deductions and exemptions available under the old regime. The deduction for family pension under Section 57(iia) is one of the few exceptions that continues to be available.
Here is a general comparison to guide your thinking:
| Income Range (Annual) | New Regime Benefit | Old Regime Benefit |
|---|---|---|
| Up to Rs 7 lakh | Zero tax (with 87A rebate) | Depends on deductions claimed |
| Rs 7 lakh to Rs 10 lakh | Lower slab rates benefit most | Useful if 80C, 80D fully utilised |
| Rs 10 lakh to Rs 15 lakh | New regime often better | Old regime better with large deductions |
| Above Rs 15 lakh | New regime slab rates favourable | Old regime only better with very high deductions |
If you have limited deductions, such as no home loan interest, minimal investments under Section 80C, and no significant deductions under the old regime, the new tax regime may result in a lower tax liability because of its lower slab rates and other applicable benefits.
On the other hand, if you are eligible to claim substantial deductions and exemptions under the old tax regime, it may still be the more tax-efficient option despite the lower family pension deduction limit.
It is also important to note that the family pension deduction is not identical under both regimes. For FY 2025–26 (AY 2026–27), the deduction is limited to the lower of one-third of the family pension or Rs. 15,000 under the old tax regime, whereas the corresponding limit under the new tax regime is Rs. 25,000.
The right choice depends on your complete financial situation. Comparing your tax liability under both regimes before filing your return is the most reliable way to determine which option is more beneficial.
What Happens If You Receive Both Salary and Family Pension?
Yes. In some cases, an individual may receive a salary from current employment while also receiving family pension after the death of a parent or spouse. Since these incomes are taxed under different heads, each is eligible for its respective deduction.
In such cases:
- The standard deduction available to eligible salaried employees applies to income taxable under the head “Salaries.”
- The family pension deduction under Section 57(iia) applies to income taxable under the head “Income from Other Sources.” For FY 2025–26 (AY 2026–27), the maximum deduction is Rs. 25,000 under the new tax regime and Rs. 15,000 under the old tax regime, subject to the limit of one-third of the family pension received, whichever is lower.
- If you are eligible, both deductions can be claimed in the same Income Tax Return (ITR).
This is an important point. The two deductions apply to different heads of income, so claiming one does not prevent you from claiming the other. The key is to report your salary and family pension under their respective income heads correctly.
A Note on Investing Your Family Pension Wisely
For many recipients, family pension is their primary or only source of regular income. Protecting this income and managing it prudently is essential. Once you have claimed the available tax deduction and determined your post-tax income, the next step is to make informed decisions about any surplus funds.
Depending on your financial goals, investment horizon, and risk tolerance, mutual funds may form part of a diversified investment strategy. For some investors, debt-oriented or hybrid mutual funds may be suitable for generating regular cash flows or seeking long-term growth while managing risk. However, the right investment approach varies from person to person, and all mutual fund investments are subject to market risks.
At VSJ FinMart, we take the time to understand your income needs, financial goals, and risk profile before recommending suitable mutual fund solutions. Whether you are a family pension recipient managing day-to-day expenses or someone looking to invest surplus funds for the future, our objective is to help you build an investment plan that is tailored to your individual circumstances.
Final Words: Do Not Miss This Hidden New Regime Benefit
The family pension deduction under the new tax regime is a valuable tax benefit that can reduce your taxable income without requiring any investment or additional paperwork. From FY 2025–26 (AY 2026–27), the maximum deduction under the new tax regime has increased to Rs. 25,000, providing additional tax relief for eligible family pension recipients.
To summarise the key points:
- Family pension is taxable under the head “Income from Other Sources,” not “Salaries.”
- Under Section 57(iia), the deduction is the lower of one-third of the family pension received or the prescribed monetary limit.
- For FY 2025–26 (AY 2026–27), the maximum deduction is Rs. 25,000 under the new tax regime and Rs. 15,000 under the old tax regime.
- Claiming the deduction correctly requires reporting the family pension under the appropriate head of income in your Income Tax Return (ITR).
- If you receive both salary and family pension, you may be eligible to claim both the standard deduction (against salary income) and the family pension deduction under Section 57(iia), as they apply to different heads of income.
Even though the deduction may appear modest, it can make a meaningful difference to your taxable income and overall tax liability, particularly for individuals who depend on family pension as a regular source of income.
If you are unsure about your tax situation or want to make sure your investments and tax planning are aligned, the advisors at VSJ FinMart are here to help. We offer personalised guidance that goes beyond generic checklists and gives you a clear, actionable financial plan built around your goals.
Frequently Asked Questions
Q1. Is the family pension deduction available if I opt for the new tax regime?
Yes. The family pension deduction under Section 57(iia) is available under the new tax regime. Unlike most deductions under Chapter VI-A, this deduction continues to be allowed because it is a deduction for computing income under the head “Income from Other Sources.” For FY 2025–26 (AY 2026–27), the maximum deduction under the new tax regime is Rs. 25,000 or one-third of the family pension received, whichever is lower.
Q2. My father passed away while in service. I receive family pension from his employer. Can I claim this deduction?
Yes. Whether the deceased was a serving employee or a retired pensioner, the family pension paid to legal heirs qualifies under Section 57(iia). You can claim the deduction in your ITR under Income from Other Sources.
Q3. I receive a commuted pension, not a regular monthly family pension. Does the deduction apply?
No. The Section 57(iia) deduction applies only to regular, periodic family pension payments. Commuted pension, gratuity, and lump-sum death benefits are treated differently and follow their own tax rules. Please consult a tax professional for the specific tax treatment of commuted amounts.
Q4. Can both a widow and her dependent child claim the family pension deduction if pension is split between them?
Yes, provided each person is separately entitled to receive a share of the family pension and is taxable on that share under the applicable pension rules. Each eligible recipient may claim the deduction under Section 57(iia) on their own share of the family pension, subject to the applicable limit under the relevant tax regime.
Q5. What if I forgot to claim this deduction in previous years?
If you discover that you omitted this deduction after filing your return, you may be able to file a revised return, provided the time limit prescribed under the Income-tax Act has not expired. If a revised return is no longer permitted, you should check whether an Updated Return (ITR-U) or any other remedy is available under the applicable provisions of the Act. Since the options depend on the assessment year and your individual circumstances, it is advisable to consult a qualified tax professional before taking further action.
Disclaimer
The information provided in this blog is for educational and informational purposes only and should not be construed as investment advice. Please consult a qualified financial advisor before making any investment decisions. Shashikant Chanderkumar Mudaliar (ARN: 319377), operating under the brand name VSJ FinMart, is an AMFI-registered Mutual Fund Distributor (MFD) and does not provide investment advisory services. Mutual fund investments are subject to market risks. Past performance is not indicative of future results. Please read all scheme-related documents carefully before investing. Registration details can be verified at www.amfiindia.com/locate-distributor.