What is pension commutation?
Commutation of pension allows a retiring Central Government employee to convert a part of the monthly pension into a one-time lump sum payment. In exchange, the monthly pension is reduced by the commuted portion for a fixed period, after which it is restored to the full amount. This is governed by the CCS (Commutation of Pension) Rules, 1981.
How much pension can be commuted?
A Central Government employee may commute up to a maximum of 40% of the basic monthly pension. There is no minimum — an employee may choose to commute anywhere up to this ceiling, or opt not to commute at all.
How the lump sum is calculated
The commutation factor depends on your age on your next birthday at the time your pension is authorised, drawn from the official commutation table (based on a life-expectancy annuity table notified by the Government). A younger age at retirement gives a higher factor — and hence a larger lump sum for the same percentage commuted — because the pension is expected to be paid, and hence "bought back," over a longer period.
| Age next birthday | Commutation factor |
|---|---|
| 60 | 8.287 |
| 61 | 8.194 |
| 62 | 8.093 |
| 63 | 7.982 |
| 64 | 7.862 |
| 65 | 7.731 |
| 66 | 7.591 |
| 67 | 7.431 |
| 68 | 7.262 |
| 69 | 7.083 |
| 70 | 6.897 |
This is the standard table used since the factor revision under the 7th CPC dispensation. Always cross-check the factor applicable on your date of retirement with your Pay & Accounts Office (PAO), as tables are occasionally revised.
Worked example
Commuted portion = ₹50,000 × 40% = ₹20,000/month
Lump sum = ₹20,000 × 12 × 8.194 = ₹19,66,560
Reduced monthly pension (until restoration) = ₹50,000 − ₹20,000 = ₹30,000
Restoration of commuted pension
The commuted portion of pension is restored after 15 years from the date the reduction begins (typically the date of retirement, or the date the commuted value is credited, whichever governs under the applicable order). After restoration, you receive the full, un-commuted basic pension again — plus all Dearness Relief increases that would have accrued in the meantime, since DR is calculated on the full pension throughout, even during the commuted period.
When to apply, and medical examination
- If you apply for commutation within one year of the date of retirement, no medical examination is required — the commuted value is paid based on your simple application.
- If you apply after one year of retirement, a medical examination by the competent medical authority is mandatory before commutation is sanctioned, and a lower factor table may apply based on the medically assessed age.
Effect on family pension
Commutation of pension does not reduce family pension. In the event of the pensioner's death, family pension is calculated on the full, un-commuted basic pension — the commutation only affects what the pensioner personally draws during their lifetime (and only until restoration).
Tax treatment
Commuted pension received by a Central Government employee is fully exempt from income tax under Section 10(10A)(i) of the Income Tax Act, 1961, regardless of the percentage commuted.