Commutation of pension allows government pensioners to receive a lump sum amount by converting a portion of their monthly pension. This comprehensive guide explains the rules, calculation methods, and restoration process for commuted pension in 2026.
What is Commutation of Pension?
Commutation of pension is a facility that enables government pensioners to commute (convert) up to 40% of their basic pension into a lump sum payment. This one-time payment is received at the time of retirement and helps pensioners meet immediate financial needs such as clearing loans, medical expenses, or other retirement-related expenses.
Maximum Commutation Allowed
Central Government Employees: Can commute up to 40% of basic pension
For Employees Receiving Gratuity: Maximum 1/3rd (33.33%) can be commuted
Family Pensioners: Can commute up to 40% of family pension
Commutation Value Calculation
The commuted value is calculated using the following formula:
Commuted Value = (40% of Basic Pension) × 12 × Commutation Factor
The commutation factor varies based on the age of the pensioner at the time of retirement and is determined by actuarial tables approved by the government.
Commutation Table 2026
The commutation factor table considers the age (in completed years and months) at the time of commutation. Here are sample factors:
Age 57 years: Factor around 8.194
Age 58 years: Factor around 8.086
Age 59 years: Factor around 7.976
Age 60 years: Factor around 7.862
Note: The exact factor depends on completed age in years and months. Refer to official government commutation tables for precise factors.
Impact on Monthly Pension
After commutation, the monthly pension is reduced by the commuted portion. For example:
Original Basic Pension: ₹30,000
Commuted Portion: 40% = ₹12,000
Reduced Monthly Pension: ₹18,000 (₹30,000 – ₹12,000)
Dearness Relief continues on full pension (₹30,000)
Important Point: While basic pension is reduced, Dearness Relief (DR) is calculated on the original pension amount before commutation.
Restoration of Commuted Pension
The commuted portion of pension is restored after 15 years from the date of payment of commuted value. After restoration, pensioners receive their full original pension amount.
Restoration Timeline: After exactly 15 years
Automatic Process: No application required in most cases
Full Pension Restored: Original basic pension amount resumed
Application Process for Commutation
Timing: Apply within one year of retirement
Form Required: Submit application in prescribed format to pension disbursing authority
Medical Examination: May be required in certain cases
Processing Time: Typically 2-3 months after retirement
Documents Required
Copy of Pension Payment Order (PPO)
Application for commutation in prescribed form
Identity proof
Bank account details
Medical certificate (if applicable)
Tax Implications
The commuted pension amount is tax-free under Section 10(10A) of the Income Tax Act for government employees.
Advantages of Pension Commutation
Immediate lump sum for retirement needs
Tax-free payment
Helps clear loans and debts
Restoration after 15 years
DR calculated on original pension
Disadvantages to Consider
Reduced monthly income for 15 years
Impact on monthly budget planning
Opportunity cost of immediate consumption vs long-term income
Who Should Opt for Commutation?
Consider commuting if you:
- Have outstanding loans to clear
- Need lump sum for medical treatment
- Plan major expenses like children’s marriage
- Have other sources of income to supplement reduced pension
- Are comfortable with lower monthly pension for 15 years
Conclusion
Commutation of pension is a valuable facility for government pensioners to meet immediate financial requirements in 2026. However, it requires careful consideration of long-term financial planning. Pensioners should evaluate their financial needs, health status, and other income sources before deciding on commutation. The restoration after 15 years ensures that pensioners eventually receive their full pension benefits.