Re-employed pensioner taxation

A re-employed pensioner is taxed on the pension and the pay of the new post as one salary income: Section 15(2) of the Income-tax Act 2025 treats a former employer as an employer, Section 16(b) brings any pension into salary, and the two are aggregated under the head Salaries, with one standard deduction and one slab computation for the tax year.

The rule is old and simple. What goes wrong in practice is collection. The bank that pays the pension and the office that pays the re-employment salary each deduct tax under Section 392 as if their payment were the person’s only income, so each grants the full nil slab and, in the new tax regime, the Rs. 60,000 rebate. A pensioner drawing Rs. 6,00,000 of pension and Rs. 9,00,000 of pay can reach March with nothing deducted by either payer and owe Rs. 97,500 on the combined Rs. 15,00,000. Form No. 122 under rule 204 of the Income-tax Rules 2026, the successor to Form 12B, is the instrument that closes that gap.

Re-employment after retirement takes several forms, and the tax result depends on which. A pensioner re-employed in a regular post has pay fixed under the CCS (Fixation of Pay of Re-employed Pensioners) Orders 1986; a retiree appointed on contract under the Department of Expenditure Office Memorandum No. 3-25/2020-E.IIIA dated 9 December 2020 draws a fixed remuneration of last pay minus basic pension; a consultant engaged for a fee earns professional income. The first two are salary. The third is a different head of income, with deduction at source at 10% and, for a person over 60, the loss of the advance-tax exemption.

Most re-employed civil pensioners are past 60, because DoPT OM No. 26012/6/2002-Estt.(A) dated 9 December 2002 bars both re-employment beyond 60 and appointment after 60 through contract; the contract appointments made in spite of it are paid under the Department of Expenditure OM of 9 December 2020, which recites that bar. Below 60, the typical re-employed pensioner is an ex-serviceman in a civil post, because personnel of the Army, Navy and Air Force typically retire well before 60 with a service pension; such a person draws that pension alongside civil pay and pays advance tax like any other salaried person. The sections below take each element in turn: aggregation, the standard deduction, deduction at source by two payers, contract and consultancy income, advance tax, retirement receipts at the end of re-employment, the National Pension System, and the regime choice, with worked figures for the tax year 2026-27.

Pension and pay as one salary income

A pension paid by the central government is salary for income-tax purposes. Section 16(b) of the Income-tax Act 2025 includes “any annuity or pension” in salary, and Section 15(2) provides that an employer includes a former employer, so a pension received from the government after retirement is income from salary from a former employer.

The pay of the re-employed post is salary from a current employer. Both fall under the one head, and Section 19(1) of the Act computes “the income chargeable under the head ‘Salaries’” after the deductions in its Table. The result is a single figure: pension plus dearness relief, if any, plus pay, dearness allowance and taxable allowances of the re-employed post, less one standard deduction.

Heads of income for a re-employed pensioner, Income-tax Act 2025, tax year 2026-27.

The family pension row is the exception. A widow re-employed in government service who draws a family pension has that pension taxed under “Income from other sources”, because it is paid to her as a member of a deceased employee’s family, not by her own former employer. It carries the Section 93(1)(d) deduction of one-third or Rs. 25,000 in the new regime, one-third or Rs. 15,000 in the old regime, whichever is less in each case, and does not share her salary standard deduction. Rule 52(4) of the CCS (Pension) Rules 2021 keeps her dearness relief on the family pension running while she is employed.

One standard deduction

Section 19(1) Table serial 2 of the Income-tax Act 2025 allows a standard deduction of “Rs. 75000 or the salary, whichever is less, where income-tax is computed under section 202(1)”, and “Rs. 50000 or the salary, whichever is less, in any other case”. The deduction is from the income chargeable under the head Salaries, not from each salary.

A re-employed pensioner therefore gets Rs. 75,000 in the new regime or Rs. 50,000 in the old, once, against pension and pay together. The pension bank and the re-employing office will each allow a standard deduction when computing their own deduction at source, which is one reason the combined deduction at source falls short. The return corrects it, at a cost to the pensioner of tax on Rs. 75,000 at the marginal rate. Where the combined total income falls in the new-regime 15% band above the marginal-relief range, from Rs. 12,70,589 to Rs. 16,00,000, the second payer’s standard deduction understates the year’s tax by Rs. 11,700 including cess.

Deduction at source by two payers

Section 392(1) of the Income-tax Act 2025 requires any person paying salary to deduct tax at the average rate on “the estimated income of the assessee under this head for such year”. The pension-disbursing bank does it on the pension,, and the drawing and disbursing officer of the re-employing office does it on the pay. Neither knows the other’s figure unless told.

The shortfall in rupees

A retired Under Secretary re-employed by a central public sector undertaking draws a pension of Rs. 50,000 a month, Rs. 6,00,000 for 2026-27, with dearness relief stopped under Rule 52(2), which reaches re-employment under a corporation or company owned or controlled by the government, because the officer held a Group A post. The re-employed pay, dearness allowance and allowances come to Rs. 75,000 a month, Rs. 9,00,000 for the year.

Tax year 2026-27, Table to Section 202(1) and Section 156(2) of the Income-tax Act 2025. Computed by salary-calculator.in.

Each payer, computing correctly on what it knows, deducts nothing. The pensioner’s liability on the combined salary is Rs. 97,500, all of it payable with the return. The arithmetic is the same at most combinations where each salary on its own is under Rs. 12,75,000 and the two together are over it.

Form No. 122

Section 392(4)(a) of the Income-tax Act 2025 requires the person paying salary to take into account particulars furnished by the assessee, “at his option”, of “any income under the head ‘Salaries’ due or received by the assessee, from any other employer or employers during the tax year”, and of income under other heads and tax already deducted. Rule 204(1) of the Income-tax Rules 2026 prescribes Form No. 122 for those particulars, the successor to Form 12B under rule 26A of the 1962 Rules.

A re-employed pensioner who gives the re-employing office a Form No. 122 showing the pension, and the tax deducted by the bank, has the office deduct on Rs. 15,00,000 for the rest of the year. Section 392(5)(c) lets the office increase the deduction to make up for the months already paid. Section 392(4)(b) provides that the particulars can never reduce the tax deducted from salary except for a house-property loss or tax already deducted under other provisions, so the office’s deduction can fall only on those two grounds: reporting the pension raises it, and reporting the tax the bank has already deducted is what stops the same tax being deducted twice.

The office is the better recipient of the form for a practical reason. Its pay is the larger and more variable figure, while the pension is fixed and known from the pension payment order. Either payer can receive it.

Two certificates, one return

At the year end each payer issues its own certificate in Form No. 130 under rule 215 of the Income-tax Rules 2026, the successor to Form 16. Both are reconciled in the return, together with the annual information statement in Form No. 168, the successor to Form 26AS. ITR-1 accepts salary from more than one employer, so a re-employed pensioner with pension, pay, interest and up to two house properties files it, subject to its income limit. The TDS on salary article covers the payer’s side.

Contract engagement and consultancy

Two kinds of post-retirement engagement fall outside the 1986 re-employment orders, and they are taxed differently from each other.

Contract appointment under the 2020 OM

Department of Expenditure Office Memorandum No. 3-25/2020-E.IIIA dated 9 December 2020 governs every retired central government employee appointed on contract. Paragraph 6.1 fixes the remuneration at the pay drawn at retirement minus basic pension, unchanged for the term; paragraph 6.3 allows no increment or dearness allowance; paragraph 7 allows a transport allowance and paid leave at 1.5 days a month. Those are terms of an appointment, so the remuneration is income under the head Salaries and the paying office deducts tax on it under Section 392.

The OM’s own example in paragraph 6 takes a Level 13 officer with last pay of Rs. 1,55,900 and basic pension of Rs. 77,950, who commuted 40% of the pension and draws Rs. 46,770 a month. The remuneration is Rs. 77,950 a month, because the full basic pension is deducted from last pay whether or not it was commuted.

Contract appointee under DoE OM 3-25/2020-E.IIIA, 9 December 2020, taxed in the new regime for 2026-27, Table to Section 202(1), Income-tax Act 2025. Computed by salary-calculator.in on the assumption that no dearness relief is paid on the pension during the contract; cess rounded to the rupee.

The commuted portion of the pension is not income again: the lump sum was excluded in full at the first retirement, under Section 10(10A) of the 1961 Act where that retirement was before 1 April 2026, and the reduced monthly pension is what is taxed. Computed alone, the pension bank’s figure (Rs. 4,86,240 of total income) and the office’s figure (Rs. 8,60,400) both fall inside the Section 156(2)(a) rebate, so the Form No. 122 route matters here as much as on regular re-employment.

The 2023 variant for National Pension System retirees, Department of Expenditure OM No. 03-25/2020-E.III(A)/Pt dated 18 October 2023, deducts 30% of last basic pay in place of the pension. The NPS retiree has no government pension to aggregate, but any annuity bought from the NPS corpus is income in its own right, as the NPS tax benefits article sets out.

Consultancy for a fee

A retiree engaged as a consultant on a fee for professional services is not an employee. The fee is income under the head “Profits and gains of business or profession”, and the payer deducts tax under Section 393(1) Table serial 6(iii) of the Income-tax Act 2025, which applies to a “specified person” paying fees for professional services, at 10% where the sum exceeds the Rs. 50,000 threshold. Section 402(37)(a) makes every payer other than an individual or Hindu undivided family a specified person, so a ministry, a public sector undertaking or a university deducts.

Three consequences follow for a consultant pensioner aged 60 or more:

1. Advance tax applies. Section 403(3) exempts a senior citizen from advance tax only where there is no income under the head Profits and gains of business or profession. The first rupee of consultancy fee removes the exemption for the whole year’s tax, pension included.
2. The regime option becomes once-only. Section 202(4)(a) governs a person with business or professional income: the option to leave the new regime is exercised by the due date, continues for later years and can be withdrawn only once. The year-by-year choice in Section 202(4)(b) is lost.
3. The return form changes. ITR-1 does not carry business or professional income.

The fee is reduced by the expenses of earning it, and the pension continues to be salary with its own standard deduction. The 10% deducted on the fee is a credit against the year’s tax; it is not the final tax.

Advance tax and self-assessment

Section 403(3) of the Income-tax Act 2025 disapplies the advance-tax liability in Section 403(1) for an individual resident in India who has no income chargeable under the head Profits and gains of business or profession and who is 60 or more at any time during the tax year. A re-employed civil pensioner past 60 on a regular re-employment or a contract appointment has only salary and other non-business income, so owes no advance tax however large the shortfall in deduction at source.

The Under Secretary in the example above, aged 61, can pay the Rs. 97,500 as self-assessment tax under Section 266 before filing the return, and no interest arises under Sections 424 and 425 for deferment of advance tax, because there was no advance-tax liability. Interest under Section 423 still runs if the return itself is late.

An ex-serviceman below 60 is in a different position. A soldier who retired at 42 with a service pension of Rs. 4,20,000 a year and took a civil post paying Rs. 9,60,000 a year has a combined salary of Rs. 13,80,000. In the new regime that is a total income of Rs. 13,05,000, slab tax of Rs. 75,750 and tax of Rs. 78,780 with cess. Section 404 makes advance tax payable where the tax for the year, net of deduction at source, is Rs. 10,000 or more, and Section 408 sets the instalments. If neither payer has deducted on the combined figure, interest under Sections 424 and 425 runs on the shortfall. A Form No. 122 given to the civil office early in the year avoids both the interest and the year-end balance.

Dearness relief, pay fixation and arrears

Re-employment changes the taxable figure as well as the tax. Rule 52(2) of the CCS (Pension) Rules 2021 stops dearness relief on a civil pension for the whole period of re-employment under the central government, a state government, or a corporation, company, body or bank under them, unless all three conditions of its proviso hold: the pensioner did not hold a Group A post, the re-employed pay was fixed at the minimum of the level and that minimum was below the pay drawn before retirement, and the entire pension was ignored in fixing it. A former Group A officer loses dearness relief for the period, and the taxable pension falls by that amount.

In a regular re-employment the pay is fixed under the CCS (Fixation of Pay of Re-employed Pensioners) Orders 1986, as extended to the 7th CPC pay matrix by DoPT OM No. 3(3)/2016-Estt.(Pay II) dated 1 May 2017. The first Rs. 15,000 of pension is ignored, the rest is deducted from the pay, and pay plus gross pension cannot exceed Rs. 2,25,000 a month. The deduction of pension from pay is not a tax deduction: the taxable salary is the pay actually drawn plus the pension actually received, and pay fixation on re-employment works through the routes.

Arrears are common in both directions: dearness relief restored on a pension after the re-employment ends, or pay refixed with retrospective effect. Section 157 of the Income-tax Act 2025, the successor to Section 89, gives relief where salary is received in arrears and pushes the year into a higher slab. Section 392(4)(a)(ii) lets a government servant ask the drawing and disbursing officer to give effect to that relief at source. The Section 89 relief article covers the computation.

Retirement receipts at the end of re-employment

The end of a re-employment produces fewer lump sums than the first retirement.

No second gratuity or pension. Rule 6(2) of the CCS (Pension) Rules 2021 provides that a pensioner re-employed after retiring on a superannuation, retiring or compulsory retirement pension, or while drawing a compassionate allowance, “shall not be entitled to a separate pension or gratuity for the period of his re-employment”. A contract appointee under the 2020 OM has no gratuity either. The exclusion of central government gratuity in Section 19(1) Table serial 3 therefore has nothing to act on.

Leave encashment within 300 days. Section 19(1) Table serial 13 of the Income-tax Act 2025 allows the entire amount of the cash equivalent of leave salary received by “an employee of the Central Government or a State Government” for earned leave at credit “at the time of his retirement whether on superannuation or otherwise”. Rule 39(6)(a)(iii) of the CCS (Leave) Rules 1972 allows encashment at the end of re-employment subject to 300 days in all, including what was encashed on the first retirement. A pensioner who encashed 300 days at superannuation encashes nothing further, and one who encashed 240 days can encash up to 60 more. Paragraph 7.3 of the 2020 OM provides that a contract appointee’s leave may not be allowed to accumulate beyond the calendar year, so such an appointee ordinarily has none to encash. The leave encashment article covers the leave side.

Commuted value unaffected. The commutation lump sum at the first retirement was fully excluded, under Section 10(10A) of the 1961 Act for a retirement before 1 April 2026 and under Section 19(1) Table serial 7 of the 2025 Act after it, for pension commuted under the Civil Pensions (Commutation) Rules. Re-employment does not reopen it, and the commuted portion of the pension is restored after 15 years whether or not the person is re-employed, as the commutation of pension article explains.

A pensioner from a state government, a public sector undertaking or an autonomous body re-employed in a central post had the first retirement’s leave encashment taxed under the provision that applied to that employer, Section 10(10AA) of the 1961 Act where the retirement was before 1 April 2026. Serial 14 covers an employee who is not a central or state government employee and caps the exclusion by formula, and its aggregate operates across employers.

National Pension System contributions

A re-employee to whom the CCS (Implementation of National Pension System) Rules 2021 apply contributes on emoluments that, under Rule 5(7), include the element of pension by which the re-employed pay was reduced. The government contribution of 14% for a central government employee is deductible under Section 124(1)(a) of the Income-tax Act 2025, which Section 202(2)(a)(xii) preserves in the new regime. The employee’s own contribution is deductible only in the old regime. The CCS (Implementation of Unified Pension Scheme under National Pension System) Rules 2025, notified as G.S.R. 599(E) dated 2 September 2025, carry the same Rule 5(7).

Both sets of rules exclude, by Rule 2(f), persons employed on contract. A retiree on a contract under the 2020 OM makes no contribution and claims no deduction. An ex-serviceman who joined military service after 31 December 2003 and is re-employed in a civil post is covered by the National Pension System for the civil service, under Explanation 3 to Rule 20 of the CCS (Pension) Rules 2021, and the National Pension System article covers the tax on the corpus.

Ex-servicemen in civil posts

The Ex-servicemen (Re-employment in Central Civil Services and Posts) Rules 1979 reserve 10% of Group C vacancies and 20% of Group D vacancies for ex-servicemen. Their tax position differs from a civil pensioner’s in three respects.

• Advance tax. Below 60 there is no Section 403(3) exemption, so a shortfall in deduction at source carries interest.
• Pay fixation. An ex-serviceman who retired below commissioned rank before 55 has the whole pension ignored under Order 4(d)(i) of the 1986 Orders. Pay is fixed at the first cell of the level, and the full pension is added to it for tax.
• Dearness relief. The Ministry of Defence letter No. 7(1)/95/D(Pen/Services) dated 28 August 2000 allows dearness relief on the military pension of personnel below officer rank whose pension was ignored in fixing civil pay at the minimum, so it stays in the taxable figure.

A military pension is pension under Section 16(b) and is aggregated with civil pay in the same way. Specific exemptions in Schedule III of the Act, such as those for family pension where a member of the armed forces died in operational duties and for pensions attached to gallantry awards, are unaffected by re-employment. The disability pension article sets out how far a disability element is taxable.

Old or new regime for a re-employed pensioner

Aggregation pushes most re-employed pensioners into the range where the new regime’s lower slabs dominate. At a combined salary of Rs. 15,00,000, the new regime charges Rs. 93,750 of slab tax. The old tax regime charges a resident aged 60 to 79 Rs. 10,000 plus 20% of the total income between Rs. 5,00,000 and Rs. 10,00,000, and Rs. 1,10,000 plus 30% above that. For the old regime to match Rs. 93,750, total income would have to fall to Rs. 9,18,750, which needs Rs. 5,81,250 of deductions including the Rs. 50,000 standard deduction.

The old regime gives a re-employed pensioner a few items the new does not: house rent allowance exemption under Schedule III serial 11 for a re-employee who draws house rent allowance on the pay before pension deduction, Section 123 investments up to Rs. 1,50,000, Section 126 health insurance, Section 153(2)(b) interest up to Rs. 50,000, and the employee’s own NPS contribution. Against that, it loses Rs. 25,000 of standard deduction. A pensioner without business income chooses each year in the return under Section 202(4)(b); the old vs new tax regime and how to switch tax regime articles cover the comparison and the mechanics.

Filing the return

A re-employed pensioner files a return under Section 263(1) of the Income-tax Act 2025 whenever total income exceeds the maximum amount not chargeable to tax. Three filing reliefs that pensioners rely on are unavailable or limited during re-employment:

Filing and advance-tax reliefs for a re-employed pensioner, Income-tax Act 2025 and Income-tax Rules 2026, tax year 2026-27.

The pensioner reconciles the two Form No. 130 certificates and the Form No. 168 statement, claims one standard deduction, and pays any balance as self-assessment tax before filing. A return filed after the due date in Section 263 carries the late fee under Section 428, the successor to Section 234F.

Common misreadings

“Each salary gets its own Rs. 75,000.” Section 19(1) Table serial 2 allows Rs. 75,000 or Rs. 50,000 against the head Salaries as a whole.

“No tax was deducted, so none is due.” Each payer deducts as if its payment were the only salary. Liability is on the combined income and is settled in the return.

“The pension deducted from re-employed pay is a tax deduction.” The 1986 Orders reduce the pay; the taxable salary is the pay actually drawn plus the pension actually received.

“A consultant’s fee is salary.” A fee for professional services is business or professional income, deducted at source at 10% under Section 393(1) Table serial 6(iii), and it removes the Section 403(3) advance-tax exemption.

“At 75 the pensioner need not file.” Section 402(39) excludes anyone with income other than pension and same-bank interest.

“The end of re-employment brings a second tax-free gratuity.” Rule 6(2) of the CCS (Pension) Rules 2021 bars a separate pension or gratuity for re-employed service.

Related Articles

• Re-employment after retirement
• Pay fixation on re-employment
• Ex-servicemen re-employment rules, 1979
• Income tax for pensioners
• Senior citizen tax
• Super-senior citizen taxation
• Section 194P
• Income-tax Act 2025
• TDS on salary
• Form 16
• Form 26AS
• Standard deduction
• Advance tax
• Self-assessment tax
• Section 89 relief
• Old tax regime
• New tax regime
• Old vs new tax regime
• How to switch tax regime
• Section 87A rebate
• Marginal relief on income tax
• Central government pension
• Dearness relief
• Commutation of pension
• Gratuity for central government employees
• Leave encashment
• Family pension
• Disability pension
• National Pension System
• NPS tax benefits
• PPO and life certificate
• ITR-1 Sahaj
• Late filing fee
• Income tax for government employees

External references

• Income Tax Department, Income-tax Act 2025 and Rules
• Income-tax e-filing portal
• Department of Expenditure, Office Memoranda
• Department of Personnel and Training
• Department of Pension and Pensioners’ Welfare
• Central Pension Accounting Office

References

1. Income-tax Act 2025 (No. 30 of 2025), Sections 15(2), 16(b) and 19(1) Table serials 2, 3, 7, 13 and 14, in force 1 April 2026.
2. Income-tax Act 2025, Section 392(1), 392(4) and 392(5) (deduction at source on salary), Section 393(1) Table serial 6(iii) and Section 402(37) (fees for professional services).
3. Income-tax Rules 2026, rule 204 and Form No. 122 (particulars of other salary and income), rule 215 and Form No. 130.
4. Income-tax Act 2025, Sections 403(3), 404 and 408 (advance tax), Sections 423 to 425 (interest), Section 266 (self-assessment tax), Section 157 (relief for arrears), Section 202(4) (regime option), Sections 263(8)(b) and 402(39).
5. CCS (Pension) Rules 2021, Rules 6(2), 52(2) to 52(4) and Explanation 3 to Rule 20; CCS (Leave) Rules 1972, Rule 39(6)(a)(iii).
6. CCS (Fixation of Pay of Re-employed Pensioners) Orders 1986, DoPT OM No. 3/1/85-Estt.(Pay II), 31 July 1986, and DoPT OM No. 3(3)/2016-Estt.(Pay II), 1 May 2017.
7. Department of Expenditure OM No. 3-25/2020-E.IIIA, 9 December 2020, and OM No. 03-25/2020-E.III(A)/Pt, 18 October 2023 (contract appointment of retirees).
8. DoPT OM No. 26012/6/2002-Estt.(A), 9 December 2002 (re-employment beyond 60).