Income Tax on Pension Payments: Lump‑Sum and Periodic Schemes in

The Indonesian tax system imposes income tax on pension benefits only at the moment the benefit is received by the retiree. Whether the benefit is paid as a lump‑sum or in regular installments, the payment triggers the tax liability.

The basis is Article 4 paragraph (3) of the Income Tax Law, which excludes contributions and investment returns from tax, and specifies that pension payouts are taxable under Article 4 paragraph (1). Lump‑sum payments are subject to final PPh 21 under Government Regulation No 68/2009 and Ministerial Regulation No 16/2010, with a 0 % rate up to Rp 50 million and 5 % above. Regular installments are taxed according to Ministerial Regulation No 168/2023, using a 5 % pension cost deduction (capped at Rp 2.4 million per year) and the applicable monthly PPh 21 rates.

Employers and pension funds must withhold the correct amount at the time of payment; final tax on lump‑sum cannot be credited, while tax on periodic payments can be offset against other liabilities. The rules affect the net pension received by retirees and the compliance burden for companies.