Family Pension Scheme

In India, a family pension is provided to the family members of a deceased government employee or pensioner. It is a financial support system that is given to the family after the death of the employee. The pension is usually paid to the spouse or dependent children of the employee.

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What is Family Pension? 

Family pension is granted to the widow/widower, and where there is no widow/widower to the children of a government servant. The employee must have entered into service in a pensionable establishment on or after 01/01/1964 but on or before 31/12/2003. 

Employees having entered service before 01/01/1964 but have come to be governed by the provisions of the Family Pension Scheme for Central Government Employees, 1964.

When Does Family Pension Become Valid?

If a government employee was receiving a pension, their spouse or children who are younger than 25 years old can receive a family pension if the employee has:

  • Died while in service on or after 01/01/1964 or

  • Retired/died before 31.12.1963 or

  • Retired on or after 01/01/1964

Here's a real-life example of how Family Pension Works in India:

Suppose Mr Sharma was a government employee who worked for 20 years and contributed to a pension scheme during his employment. Unfortunately, Mr Sharma passed away due to natural causes. He is survived by his wife and two dependent children.

In this case, Mr Sharma's family would be eligible to receive a family pension. The pension amount would be calculated as a percentage of Mr Sharma's last drawn basic pay. 

For example, if his last drawn basic pay was Rs. 50,000 per month, the pension scheme provides for a family pension of 50% of the basic pay. His family would be eligible to receive Rs. 25,000 per month as a family pension.

The family pension would be payable for life to Mr Sharma's wife. In case of her death, the family pension would be payable to the dependent children until they reach a certain age or become financially independent, as per the rules of the pension scheme.

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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:

  1. Dependent Children

    Dependent children of the deceased government employee or pensioner, including adopted children, are eligible to receive a family pension. It is given until they attain the age of 25 years and until they start earning a monthly income exceeding Rs. 9,000 + Dearness Allowance (DA).

  2. Daughters

    The family pension can be granted to the widow, divorced, or unmarried daughter of a deceased government servant until her remarriage or for a lifetime. If she begins to earn a monthly income exceeding Rs. 9,000 + DA, the family pension will be stopped.

  3. Parents

    Starting from 1 January 1998, if only the government employee who passed away is not survived by a widow or eligible child, the family pension will be paid to their wholly dependent parents. In such cases, the mother will be the first one to receive the pension. In the mother’s absence, the father of the deceased becomes the next eligible recipient.

  4. Dependents with Disability

    If a government employee's child experiences any disorder, physical disability, or impairment that prevents them from earning a living after turning 25 years old, the family pension can be paid for the child's entire life, provided certain conditions are met.

  5. Dependent siblings

    Dependent siblings of the deceased government employee or pensioner are eligible to receive a family pension if they were wholly dependent on the employee or pensioner for financial support at the time of their death.

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Eligibility Criteria for Family Pension

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

  1. Eligibility for Spouse

    The family pension can be paid to your surviving spouse under the following conditions:

    • The family pension is given to a widow or widower until the date of their death or remarriage, whichever comes first.

    • If a widow without children remarries, she will continue to receive the family pension if her income from other sources is less than the minimum family pension plus the applicable dearness relief.

  2. Eligibility for Children

    The family pension can be paid to your surviving children under the following conditions:

    • Family pension to the children shall be payable in the order of their birth and the younger of them will not be eligible for family pension unless the elder next to him/ her has become ineligible for the grant of family pension.

    • Twins will receive an equal share of the family pension.

    • An unmarried son can receive a family pension until he turns 25, gets married, or starts working.

    • If both parents were eligible for family pension, the surviving child will receive both pensions.

    • Receiving a family pension for one deceased person does not affect eligibility for another family pension.

    • An adopted child of the pensioner's spouse is not considered part of the deceased pensioner's family.

  3. Eligibility for Parents 

    The family pension can be paid to your surviving parents under the following conditions:

    • Family pension to the parents shall be payable if the parents were wholly dependent on the Government servant and the deceased government servant is not survived by a widow or an eligible child.

    • If the deceased government servant's mother is still alive, she will receive the family pension meant for the parents. If she has also passed away, then the father of the deceased government servant will receive the pension instead.

    • The family pension to the parents will be payable for life.

    • If the spouse is not eligible for a family pension, and no other claimant is entitled to the benefit, the names of the dependent parents may be added to the PPO issued to the retiring government servant.

How Does Family Pension Work?

The working process of the family pension scheme is easy to understand. Here are some details on it:

  • The family pension is calculated as a percentage of the pension amount that the deceased employee would have received if he or she had retired.

  • The percentage varies based on the family member who is eligible for the pension.

  • Spouses are eligible for 50% of the pension amount.

  • If the deceased employee had children, an additional 15% is added to the spouse's pension for each child, up to a maximum of two children.

  • If the deceased employee did not have a spouse, the children are eligible for 60% of the pension equally divided among them.

  • If the deceased employee had no spouse or children, the dependent parents are eligible for 75% of the pension, divided equally between them.

  • The family pension is taxable under the Income Tax Act, and the family members of the deceased employee need to file an income tax return for the same.

  • The minimum monthly pension is Rs. 9000 per month.

  • The maximum upper limit of the pension is 50% of the highest pay in the government of India.

  • Pension is payable until death.

Family Pension Rules After Death of a Pensioner

Family members of the deceased pensioner can claim the family pension as per the rules laid down by the Department of Pension and Pensioner's Welfare (DoPPW).

Here's what you need to do:

  • Obtain the death certificate of the pensioner along with their Pension Payment Order (PPO).

  • Take these documents to the bank where the pension was being paid.

  • If you or your spouse had a joint account with the pensioner in the same bank branch, then the bank will use the documents mentioned above to start the pension.

  • The bank will ask for KYC documents such as PAN, Aadhaar, and joint photographs. These documents are required to establish the identity of the claimant(s).

  • Once the bank verifies the documents and updates the date of death for the pensioner, you will receive half of the PPO back.

  • The bank will then inform the Central Pension Processing Center (CPPC) and start crediting the pension to your account.

Taxability of Family Pension

  • Family pension is considered as income and is taxed under the category of “Income from other sources” as per the Income Tax Act, 1961.

  • There are two types of pensions - commuted and uncommuted pension, where commuted pension is paid as a lump sum amount, and uncommuted pension is paid monthly.

  • Uncommuted pensions, where the pension income is paid monthly, have exemptions set to a maximum of ₹15,000 or a third of the pension received, whichever is lower.

  • The exemption on uncommuted pensions is available to the person who receives the pension and not to the pensioner.

  • Commuted pensions, where the pension is paid as a lump sum amount, have tax benefits that can be claimed based on the individual’s needs.

  • Family members receiving pension payments must report them under the ‘Any other income earned’ category in the sources scheduled in Income Tax Return 2 (ITR 2).

  • It is important to file tax returns accurately and report the family pension received accordingly.

Uncommuted Pension Taxability and Commuted Pension Taxability

Aspect Uncommuted Pension Taxability Commuted Pension Taxability
Payment Monthly Lump sum
Taxation Exemption up to ₹15,000 or 1/3rd of pension received, whichever is lower Tax benefits can be claimed based on individual needs
Reporting Reported under “Income from Other Sources” category in ITR-2 Reported under “Any other income earned” category in ITR-2
Benefit Exemption is available to the person who receives the pension, not to the pensioner Tax benefits can be claimed by the pensioner

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 the surviving family members to maintain their standard of living.

FAQ's

  • What is the difference between a Family Pension and a regular Pension?

    One significant difference between a pension plan and a family pension is that a pension plan provides benefits to an employee after they retire. On the other hand, a family pension transfers the retirement benefits to the pensioner's family members following their death.
  • What is the maximum limit of family pension?

    The highest amount that can be received as a pension in the Government of India is presently capped at 50% of the highest pay, which is currently Rs. 1,25,000 per month. The pension amount will be paid until the individual's death.
  • Does the family pension increase after 75 years?

    Pensioners will receive extra benefits as they age: 5% more when they turn 65, 10% more at 70, 15% more at 75, and 20% more at 80.
  • Can a person receive both a regular Pension and a Family Pension in India?

    A Government servant shall not earn two pensions in the same service or post at the same time or by the same continuous service.

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