The current suggestion in the new income tax bill to offer tax reliefs on commuted pension payments has again heated the old demands of pensioner groups: restore the commuted pension restore period (it is currently applicable at 15 years) to 12 years.
What Is Pension Commutation?
In the current regulations, government pensioners have access to a lump-sum payment at retirement composed of up to 40 percent of their monthly pension; dubbed as commutation of pension. To this end, their monthly pension is lowered. The entire pension is however reinstated only 15 years or after commutation.
The 12-Year Demand: Not New, But Newly Energized
There is nothing new in this demand to reduce this restoration window to 12 years. It is traceable to the 5th Central Pay Commission which had proposed the 12-year principle of restoration and was over-ruled by the government in favour of the 15-year miscellaneous principle.
Before the 2025 26 Union Budget, major employee unions such as the National Council (Staff Side)JCM (NCJCM) and confederation of Central Government Employees and Workers formally approached the government to make the restoration time lesser. They raised a number of arguments:
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The commuted amount (including interest) is normally repaid (by pensioners) within approximately 11 years.
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A number of states already operate a 12-year model of restoration.
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The 15 years extension into recovery is equivalent to excessive financial burden on the retired people.
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A shorter window of restoration is preferrable because of modern actuarial data, such as a higher life expectancy and reduction in interest rates.
What Do the Courts Say?
On a legal basis, provision of 15 years is entrenched. A risk factor, that the retiree will die before a full commuted pension is recovered, was cited by the Supreme Court in its 1986 its decision, Common Cause vs Union of India which upheld the 15-year rule. The Delhi High Court in 2019 confirmed this rationale. This practice was again affirmed more recently by the Telangana High Court. In July 2025 it rejected almost 100 appeals by schemes against speedier restoration on the grounds of compliance with Pay Commission standards and commutation being optional.
Is the Government Open to Change?
Thus far there has been an unwavering commitment to the 15-year standard by the central government with reference to risk reasons and the counsel of specialists. There had been an earlier proposal to cut this period by the Department of Expenditure, and as late as this an order of reference on the matter, taking the basis of the proposal as desirable was refused.
But there is a loud chorus building up of actuarial and stakeholder lobbying:
- Mortality tables issued by the Institute of Actuaries of India, approved by the IRDA, are revised (last time in 2021) and display a decrease in the mortality risk and rise in the life expectancy.
- Depending on the commutation factors and calculations of the interest, certain actuarial evaluations show full recovery occurring in ~10 11 years- not 15.
Why the Income Tax Exemption Matters
Despite the fact that the photo-essay excerpt of the Zee News was about the new tax exemption, it notably led to a fresh advocacy. It is hoped now by pensioners, that this should sharpen up emphasis on wider reform of pensions-in particular the timing of the restoration of commutation.
Whereby a notification to that effect by the 8th Pay Commission or further to be held Budget discussions and a resolution to that effect would alleviate to a large extent the financial burden on the retirees and go closer to the current actuarial realities. The 15-year restoration is, in the meantime, both the law and policy default.
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