[Taxability of Gratuity, Taxability of Uncommuted and Commuted Pension, Retrenchment Compensation, Leaver Encashment on retirement, Approved Superannuation fund]
Retirement BenefitsIncome under the Head Salaries
Gratuity [Sec. 10(10)]:
Gratuity
is the sum paid by the employer to its employees in appreciation of its past
services. Taxability of perquisites is given below for various types of
employees:
|
Government
employees |
Employees
covered under the Gratuity Act |
Any
other employee |
|
Fully exempt |
Minimum of the following 3 limits: |
Minimum of the following 3 limits: |
|
(1) Actual gratuity received, or (2) 15 day's salary for every completed
year, or part thereof exceeding six months (7 day's salary for each season
for an employee in a seasonal establishment); or (3)Rs. 20,00,000 |
(1) Actual gratuity received, or (2) Half months average salary of each
completed year of service. (3) Rs.20,00,000 |
|
|
Meaning of Salary: (i) Basic salary plus Dearness allowance. (ii) Last drawn salary (average salary of
the preceding three months in case of piece rated employee) (iii) No. of days in a month to be taken as
26 |
Meaning of Salary: (i) Basic Salary plus D.A. to the extent the
terms of employment so provide Commission, if a fixed percentage of turnover. (ii) Average salary of last 10 months
preceding the month in which event occurs. (iii) Only completed a year of service is to
be taken. |
Taxability of Pension:
Uncommuted
pension i.e. the periodical pension: It is fully taxable in the hands of
all employees, whether government or non-government.
Commuted
Pension: Exemption of commuted pension u/s 10(10A)
|
Govt. Employees |
Any other employee |
|
Fully exempt |
(a) If gratuity is not received: The
commuted value of 1/2 of pension which he is normally entitled to receive is
exempt. (b) If gratuity is also received: The
commuted value of 1/3rd of pension which he is normally entitled to receive
is exempt. |
Voluntary Retirement Compensation (VRS) [Sec.10 (10C)]
Any
compensation received or receivable from certain employers by the employee on
voluntary retirement as per the guidelines of the Government is exempt to the
extent minimum of the following limits:
Ø
Actual
amount received
Ø
Rs.
5, 00,000 whichever is less.
The
exemption shall be available, subject to the following conditions:
Ø
The
compensation is received only at the time of voluntary retirement or
termination of his services in accordance with any scheme or schemes of
voluntary retirement or in the case of public sector Company, a scheme of
voluntary separation. Even if the compensation is received in installments, the
exemption shall be allowed.
Ø
The
amount receivable on account of voluntary retirement or voluntary separation of
the employee does not exceed: the amount equivalent to 3 months salary for each
completed year of service; or Salary at the time of retirement multiplied by
the balance months of service left before the date of his retirement on
superannuation.
Retrenchment Compensation [Sec. 10(10B)]
Retrenchment compensation
received by an assessee at the time of his retrenchment, shall be exempt to the
least amount from the following:
(i) Actual amount received
(ii) An amount calculated in
accordance with the provisions of section 256F(b) of the Industrial
Disputes Act, 1947 which is equal to 15 days average pay for each
completed year of continuous service or any part thereof in excess of 6
months,
(ii) Amount specified by the Central Government, i.e. Rs. 500,000
Approved Superannuation Fund [sec. 10 (13)]
The tax
treatment as regards the contribution to and payment from the fund is as under:
Ø
Employee's
contribution: Deduction is available under section 80C from gross total income.
Ø
Employer's
contribution: Contribution by the employer to the approved superannuation fund
is exempt up to Rs. 1, 00,000 per year per employee. If the contribution
exceeds Rs. 1, 00,000 the balance shall be taxable in the hands of the
employee.
Ø
Interest
on accumulated balance: It is exempt from tax.
Any
payment from an approved superannuation fund is exempt from tax if it is made
on the following situations:
a) on the death of a beneficiary to an
employee
b) In lieu of or in commutation of an
annuity on his retirement at or after a specified age or on his becoming
incapacitated before such retirement
c) By way of refund of contribution on
the death of a beneficiary
Leave encashment on retirement [sec. 10(10AA)]
Any payment received
by a Central/State Govt. employee, as cash
equivalent of leave salary in respect of a period of earned leave at his credit
at the time of his retirement
whether o superannuation or otherwise. However, in the case
of other employees, the exemption is available subject to specified
limits.
1. Leave
encashed during service: fully taxable in which it is encashed
2. Leave
encashed at the time of retirement
For govt.
employee: fully exempted
For other
employees: exempted up to a minimum of the following
Ø
Notified
limit Rs. 3,00,000
Ø
Average
salary x 10 months
Ø
Actual
amount received
Ø
Average
salary x no. of months leave due
Average
salary = salary (Same as PF) for 10 months including the month of retirement /
10
Leave due is to be calculated taking one month leave or actual entitlement whichever is less