Family Pension Scheme

What is Family Pension? 

A Family Pension Scheme provides financial security to the spouse and dependents of a deceased employee, ensuring a steady income after their death. It is part of employment benefits and aims to ease financial hardship. 

• In India, the Employees’ Pension Scheme (EPS) under EPFO offers a family pension if the employee has contributed for at least ten years. 

• Under the Unified Pension Scheme (UPS) approved by the Union Cabinet in August 2024, the family pension is assured at 60% of the pension of the employee immediately before their demise. 

• Government employees receive family pension benefits under the Central Civil Services (Pension) Rules. This pension applies to employees in pensionable establishments before January 1, 1964, and those who joined before December 31, 2003. 

While family pensions offer financial relief, life insurance can complement them by providing a lump sum to beneficiaries, ensuring better financial stability.

What are the Types of Family Pensions in India?

Family pension in India is given to the spouse or dependents of a deceased government employee or pensioner. It ensures financial security after the employee's death. There are two main types:

• Commuted Pension: A part of the pension is received as a lump sum in advance, reducing the monthly pension. This helps in handling major expenses like debt repayment or significant life events. 

• Uncommuted Pension: The full pension is received as a monthly payment without any lump sum withdrawal. It ensures a steady income for long-term financial stability and is subject to family pension rules.

How Does a Family Pension Work in India?

Let us understand the working of a family pension scheme from below:

• Check Eligibility: Family pension is given to the spouse and dependent children, with dependent parents eligible if no spouse or child qualifies.

• Pension Amount Calculation: The pension is 30% of the last drawn basic pay, but if the employee had over seven years of service, it may be enhanced to 50%; the minimum pension is ₹9,000 per month, while the maximum is capped at 50% of the highest government pay.

• Payment Schedule: If an employee dies while in service, the pension is 50% of the last pay drawn for 10 years, then reduced to 30%; for pensioners, it is 50% for the first seven years after death, then 30% thereafter.

• Claim Process: Submit the death certificate, Pension Payment Order (PPO), and KYC documents to the pension-disbursing bank.

• Taxation: The family pension is taxable under the Income Tax Act, with a standard deduction of ₹15,000 under the old tax regime and ₹25,000 under the new tax regime.

• Online Pension Management: Pensioners can track, verify, and manage their pensions through government portals like SPARSH and Jeevan Pramaan.

Who is Eligible to Receive Family Pension?

As per the laws of the Indian government, the following categories of individuals are eligible to receive family pension in India:

• Spouse

• Dependent children

• Widowed, divorced, and unmarried daughters

• Dependent parents

Eligibility Criteria for Family Pension

You must nominate the person who should receive the family pension after your demise. The laws provide eligibility conditions for spouse and children to receive a family pension.

1. Eligibility for Spouse

   • The widow or widower will receive the pension for life or until remarriage.

   • A widow without children will continue receiving the pension even after remarriage if her total income from all sources is below the minimum family pension limit.

2. Eligibility for Children

   • The pension is granted to the eldest child until they become ineligible.

   • Sons are eligible until they turn 25, start earning, or get married, whichever happens first.

   • If a child has a disability preventing them from earning a livelihood beyond 25, they will receive a pension for life, subject to specific conditions.

3. Eligibility for Parents 

   • If there is no surviving spouse or eligible child, the pension is given to the deceased employee’s dependent parents.

   • The mother is the first recipient, and if she is not alive, the father becomes eligible.

4. Eligibility for Daughters

   • Unmarried, widowed, or divorced daughters above 25 years can receive the family pension if other children are either financially independent or above 25.

   • A daughter remains eligible until she gets married, remarries, or starts earning unless she has a mental or physical disability.

   • Once a government employee includes a daughter’s name in Form 4, she is officially recognised as a family member, irrespective of her pension eligibility.

   • The pension is payable to unmarried, widowed, or divorced daughters above 25, only after all unmarried children have turned 25.

5. Special Cases for Family Pension

   • Female employees or pensioners involved in ongoing divorce or protective cases can request pension benefits for their children if they pass away.

   • If no eligible child is alive at the time of the woman’s death, the widower will receive the pension.

   • For minor or disabled children, the pension is initially given to the widower as long as he is their legal guardian. If he loses guardianship, the appointed guardian will manage the pension plan.

What are the Rules for Family Pension After the Death of a Pensioner?

The Department of Pension and Pensioners’ Welfare has laid down the following rules for claiming dependent benefits after the pensioner's death:

• Visit the concerned pension-paying bank with the death certificate of the pensioner and a copy of the Pension Payment Order (PPO) (one-half page).

• The bank official will guide you through the procedure for claiming the family pension.

• If a joint account exists with the deceased spouse, submitting the death certificate and a written request to activate the pension is sufficient.

• If no joint account exists, the beneficiary must open a new bank account to receive the pension.

• The beneficiary must submit the PAN, Aadhaar card, and a joint photograph to the bank for identity verification.

• The date of death of the pensioner will be updated in records to activate the family pension.

• Half the PPO copy will be returned to the beneficiary.

• After completing the process, the bank will inform the CPPC (Central Pension Processing Centre) and start crediting the pension to the beneficiary’s account.

How to Claim Family Pension After the Pensioner’s Death?

The application process for claiming family pension is as follows:

• Step 1: Visit the pension-paying bank with the pensioner’s half of the Pension Payment Order (PPO) and death certificate.

• Step 2: If the pensioner had a joint account with the spouse, submit the death certificate and a simple application to activate the pension.

• Step 3: If no joint account exists, the spouse must open a new bank account to receive the pension.

• Step 4: The bank will verify the family member’s identity by requesting their Aadhaar card, PAN card, and a joint photograph.

• Step 5: The date of death will be updated in the records, and half of the PPO will be returned to the spouse.

• Step 6: After completing all formalities, the bank will notify the CPPC (Central Pension Processing Centre) and begin crediting the pension to the family member’s account.

Documents Required to Claim Family Pension

• Death certificate, 

• Copies of beneficiaries' Aadhaar cards,

• Bank account details of beneficiaries (original cancelled cheque or attested copy of bank passbook), 

• Proof of age (for minors)

Taxation of Family Pension

Following are the tax rules for family pension in India:

• Taxable Head: Family pensions are taxed under "Income from Other Sources" in the income tax return of the recipient family members.

• Deduction under Section 57(iia): A deduction is available under Section 57(iia) of the Income Tax Act, 1961. The deduction amount is 33.33% of the family pension or ₹25,000, whichever is lower.

• Budget 2024 Update: The deduction limit for family pension has been increased from ₹15,000 to ₹25,000 under the new tax regime.

• How to Report Family Pension: Family pension income must be reported under "Income from Other Sources" in the income details section of tax software.

• Reporting Pension Income in ITR: The reporting of pension income and employer details in the income tax return varies based on the type of pension and employment arrangement.

• Tax on Commuted Pension: In some cases, commuted family pension (lump sum payment) is fully exempt from tax.

• TDS on Pension: Tax Deducted at Source (TDS) applies to all pension payments made by an employer, which are included under the "Salary" income head.

NOTE: If your annual family pension income exceeds ₹2.5 lakh, you must file an Income Tax Return (ITR).

How Family Pension is Different from Regular Pension

Wrapping It Up!

Family pension is crucial to providing financial security and stability to the family members of the deceased government employee. This pension scheme is an essential component of social security that helps surviving family members maintain their standard of living.