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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Products

Caselet: Sunita retires with a corpus of ₹1 crore. She plans to buy an annuity for ₹40 lakh at an annuity rate of 6% per annum payable annually, and put the remaining in a fund. She asks what her annual pension from the annuity will be and how it is taxed. Which statement is correct?

Sunita's annual pension is 6% of ₹40 lakh, which is ₹2,40,000. Annuity income is taxable at her applicable slab rate as pension income, so it is not exempt and is not treated as capital gains.

  1. AAnnual pension ₹2,40,000, taxable as income from salary/pension at her slab rateCorrect
  2. BAnnual pension ₹2,40,000, fully exempt from tax
  3. CAnnual pension ₹6,00,000, taxable at her slab rate
  4. DAnnual pension ₹4,00,000, taxed as capital gains

Explanation

Annual pension = 6% × ₹40 lakh = ₹2,40,000. Annuity payments received are taxed as income at the recipient's slab rate and are not exempt. ₹6,00,000 wrongly applies 6% to the full ₹1 crore; capital gains treatment does not apply to annuity income.

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