Gratuity vs Pension

Retirement marks a new phase of life, often requiring a shift in financial planning. Gratuity and pension are two crucial components of retirement benefits that provide financial stability. While gratuity is a lump-sum payment offered as a token of appreciation for long-term service, pension ensures regular income after retirement. Understanding these benefits is vital for effective retirement planning.

For individuals looking to enhance their retirement savings, products like the Bajaj Finance Fixed Deposit can complement gratuity and pension by offering stable returns, flexible tenures, and assured safety ratings. Check rates.  

Let us delve into the nuances of gratuity and pension to understand their differences and taxation rules.

Gratuity and pension serve distinct purposes, and their differences can be summarised as follows:

Gratuity

Gratuity is a lump-sum payment made by employers to employees as a reward for long-term service. It is governed under the Payment of Gratuity Act, 1972 and requires a minimum of 5 years of continuous service with the employer.

Pension

Pension is a retirement plan that provides regular monthly payments to employees after retirement or to their dependents in case of death. It is governed by employer-specific schemes or government regulations and typically requires 10 years of contributory service.

Comparison Table

Gratuity is ideal for those seeking immediate financial support post-retirement, while a pension ensures a steady income stream. 

To further bolster your financial stability, consider the Bajaj Finance Fixed Deposit, which offers assured returns, flexible tenure options, and high safety ratings—making it a perfect addition to your retirement plan. Book FD. 

Taxation plays a vital role in determining the net benefits of gratuity and pension. Here is a detailed breakdown:

Gratuity Tax Rules

• Tax Exemption: Gratuity is exempt from tax up to Rs. 20 lakh for employees covered under the Payment of Gratuity Act, 1972.
• Taxable Amount: Any gratuity amount exceeding Rs. 20 lakh is taxable as per the individual’s income tax slab.
• Special Cases: Gratuity paid to the widow or legal heir of an employee is fully exempt from tax.

Pension Tax Rules

• Uncommuted Pension: This refers to monthly pension payments, which are fully taxable under the Income Tax Act, 1961.
• Commuted Pension: A lump-sum pension payment is partially exempt from tax. The exempt portion depends on whether the employee receives gratuity alongside the pension.

Understanding these tax rules can help you optimise your retirement benefits and minimise tax liabilities. 

Did you know you can earn up to 7.30% p.a. returns on a AAA/Stable rated investment! Explore Bajaj Finance FDs now and invest as per your needs, with tenure options ranging from 12 to 60 months. 

Gratuity and pension are both crucial for ensuring financial stability after retirement. Choosing between the two depends on individual circumstances such as service duration, financial needs, and tax implications. While gratuity provides a lump-sum benefit, a pension ensures a regular income.

For those looking to further secure their retirement, the Bajaj Finance Fixed Deposit offers an excellent investment option. Start now with as low as Rs. 15,000.