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TAXABLE INCOME UNDER THE HEAD
OF SALARY
(UNDER RETIREMENT)
INTRODUCTION
• When an employee retires from service or leaves a job
and joins the other or he is retrenched, he receives some
special payments from the employer, e.g.:
1. Gratuity [Sec.10(10)]
2. Pension and Commuted Value of Pension [Sec.10(10A)]
3. Earned Leave Salary [Sec.10(10AA)]
4. Compensation on Retrenchment [Sec.10(10B)]
5. Compensation on Voluntary Retirement [Sec.10(10C)]
6. Amount From Provident Fund [Sec.10(11)(12)]
• When the gratuity is received from more than one
employer in the same previous year, the aggregate
maximum amount exempt from tax cannot exceed
₹10,00,000/-
• Payment of Gratuity Act 1972
• Any gratuity paid to an employee while he continues
to remain in service not exempt in any case; except :-
– On retirement
– On Death
– On Resignation
– On Termination
– On becoming incapacitated prior to such retirement
GRATUITY. . . .
GRATUITY
Govt.
Employee
Other Employees
1. Amount Received
2. ₹ 10,00,000/-
3. 15/26 * Last drawn
Salary * No. of years
of service in excess of
6 months
1. Amount Received
2. ₹ 10,00,000/-
3. 15/30 * Avg. Salary of 10
months* No. of
completed years
LEAST OF THE ABOVE WILL BE EXEMPT AS THE CASE MAY BE
Basic + DA
Fully Exempt
Salary means
BASIC + DA+ Comm. on fixed % of
turnover
Example:-
Q. Rahul worked for a company for 18 years and 7 months. His
company is covered by the Payment of Gratuity Act. At the time
of his retirement, his salary was Rs 20,000. He received Rs
8,00,000 as Gratuity from his employer.
Sol- Calculation of amount which is exempt from Rs 8,00,000 –
lower of the following 3
• 20000 x 19 x 15/26 = Rs 2,19,230
• Rs 10,00,000
• Rs 8,00,000
The amount that is exempt from Gratuity payment for Rahul is Rs
2,19,230 and remaining amount of Rs 8,00,000 – Rs 2,19,230 =
5,80,769 is taxable for Rahul.
Example
Q. Sunil who works for XYZ Ltd. Retires after 30 years and 9
months of service. He receives Rs 8,00,000 as gratuity. His
average monthly salary of 10 months immediately preceding
month of retirement is Rs 50,000.
Sol- For Sunil the minimum of these amounts shall be exempt
from Tax
• 50,000 x ½ x 30 = 7,50,000
• 10,00,000
• 8,00,000
Therefore for Sunil Rs 7,50,000 shall be exempt from Tax and he
will pay tax on Rs 8,00,000 – 7,50,000 = Rs 50,000. Rs 50,000
shall be taxed and included under the head ‘Income from
Salaries’.
• Pension received from UNO by the employee or his
family member is not taxable.
• Pension received by the family after death –
Taxable in the hands of recipient under head Other Sources
and Deduction of 1/3rd OR ₹15,000/- shall be given.
PENSION. . .
PENSION
Uncommuted (Monthly Pension)
i.e. in instalments
Commutted
i.e. Lump sum
TAXABLE FOR ALL
Govt. employee
Other Employees
FULLY EXEMPT
1. The commuted value of 1/3 of the normal
pension if he also receives gratuity
2. The commuted value of 1/2 of such pension if
he does not receive gratuity
Example
• Encashment of leaves by surrendering leave
standing to one’s credit is known as LEAVE SALARY.
• Leave Salary paid to legal heirs in the case of Death
of the employee is not taxable.
• Leave Salary during the continuity of employment
will be chargeable to tax for all.
• However , leave salary is encashed on retirement by
a Government employee will fully exempt
• But for others it will be exempt up to a limit &
balance shall be taxable.
EARNED LEAVE SALARY
EARNED LEAVE SALARY. . .
During the job On Retirement
FULLY TAXABLE Govt. Employee
FULLY EXEMPT
OTHERS
Least of the following shall be exempt :-
a) Actual amount received
b) ₹ 3,00,000/-
c) Average Salary of Last 10 months of Job
d) Cash equivalent of unavailed leave calculated on the
basis of maximum 30 days leave for every year of
completed service.
Salary means
BASIC + DA+
Comm. on
fixed % of
turnover
• Compensation received by a workmen under the
Industrial Dispute Act, 1947 or under any Act, Rule,
Order, Notification issued at the time of
retrenchment, is exempt from tax to the extend of
least of the following :-
1. Amount Received
2. ₹ 5,00,000/- (amount specified by the Govt.)
3. 15 days average pay* Salary * Every completed year of
Service in excess of 6 months
RETRENCHMENT COMPENSATION
Example
Q. Mr A, is an employee of XYZ Company. Due to ill, he
was retrenched by the company. He received Rs
2,50,000. Monthly Salary Rs. 30,000. He served for 5
years and 7 Months.
Sol- 1. Amt. Received = 2,50,000
2. Max Amt. 5,00,000
3. 15/30*30000*6years = 90,000
Least of the following 90,000 will exempt so taxable
amount is 2,50,000- 90,000= 1,60,000
• Compensation received at the time of voluntary retirement or separation is
exempt from tax if following condition are satisfied :-
– Employees of Central or State Government
– Employee of P.S.U. or any other company
– Statutory Corporation
– Local authority, University
– I.I.T. or notified institute of management.
• Least of the following shall be exempt :
1. Amount Received
2. ₹ 5,00,000/-
3. a) 3 months Salary * Every completed year of Service
b) Salary X balance months of services
VOLUNTARY RETIREMENT COMPENSATION
If exemption is claimed in one A/Y. . .
then exemption is not allowed in another A/Y. . .
• Word “Provident” Means to Provide for future
• This fund is credited by an amount deducted from
the salary every month at a certain rate.
• Employer also make his own Contribution
• These contributions are invested to earn interest.
• The accumulated amount of the scheme (i.e. Credit
balance of the scheme) is paid to employee on his
retirement or to the family members in the case of
death
EMPLOYEES PROVIDENT FUND. . . .
TYPES OF PROVIDENT FUND
1.
• STATUTORY PROVIDENT FUND
• Set up under the provisions of Provident Funds Act, 1925
2.
• RECOGNIZED PROVIDENT FUND
• PF to which Employee’s Provident Fund & Misc. provisions
Act, 1952 applies.
3.
• UNRECOGNIZED PROVIDENT FUND
• When a P.F. is not recognized by the Commissioner of
Income Tax.
EMPLOYER`S CONTRIBUTION EXEMPTED
EMPLOYEE`S CONTRIBUTION
TAXABLE HERE
(But Deduction u/s 80 c is available)
INTEREST EARNED
Not treated as Income of the year in
which interest is credited.
LUMP-SUM PAYMENT EXEMPT FROM TAX
(upon the termination of service / on retirement)
STATUTORY PROVIDENT FUND
RECOGNIZED PROVIDENT FUND
EMPLOYER`S CONTRIBUTION
EXEMPTED UPTO 12% OF “SALARY”
BASIC + DA (UTOE) + COMMISSION
EMPLOYEE`S CONTRIBUTION
TAXABLE
BUT DEDUCTION IS AVAILEBLE
U/S 80 C
INTEREST EARNED EXEMPTED up to 9.5% Rate of Interest
PAYMENT (LUMP-SUM) EXEMPTED IF :-
• Employee left the job after atleast 5 years of service
• Due to ill health, discontinuance of employers business or
reasons beyond control
• Balance of EPF is transferred to the new employer
UNRECOGNIZED PROVIDENT FUND
EMPLOYER`S CONTRIBUTION EXEMPTED
EMPLOYEE`S CONTRIBUTION
No exemption but
deduction U/S 80C.
INTEREST EARNED
Not taxable in the year in which
interest is credited.
LUMPSUM PAYMENT :
1. EMPLOYER’S CONTRIBUTION
2. EMPLOYEES CONTRIBUTION
3. INTEREST OF EMPLOYER’S CONT.
4. INTEREST OF EMPLOYEE’S CONT.
TAXABLE U/H SALARIES
EXEMPT
TAXABLE U/H SALARIES
TAXABLE U/H OTHER SOURCES
Thank You !!

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TAXABLE INCOME UNDER THE HEAD OF SALARY (RETIREMENT

  • 1. TAXABLE INCOME UNDER THE HEAD OF SALARY (UNDER RETIREMENT)
  • 2. INTRODUCTION • When an employee retires from service or leaves a job and joins the other or he is retrenched, he receives some special payments from the employer, e.g.: 1. Gratuity [Sec.10(10)] 2. Pension and Commuted Value of Pension [Sec.10(10A)] 3. Earned Leave Salary [Sec.10(10AA)] 4. Compensation on Retrenchment [Sec.10(10B)] 5. Compensation on Voluntary Retirement [Sec.10(10C)] 6. Amount From Provident Fund [Sec.10(11)(12)]
  • 3. • When the gratuity is received from more than one employer in the same previous year, the aggregate maximum amount exempt from tax cannot exceed ₹10,00,000/- • Payment of Gratuity Act 1972 • Any gratuity paid to an employee while he continues to remain in service not exempt in any case; except :- – On retirement – On Death – On Resignation – On Termination – On becoming incapacitated prior to such retirement GRATUITY. . . .
  • 4. GRATUITY Govt. Employee Other Employees 1. Amount Received 2. ₹ 10,00,000/- 3. 15/26 * Last drawn Salary * No. of years of service in excess of 6 months 1. Amount Received 2. ₹ 10,00,000/- 3. 15/30 * Avg. Salary of 10 months* No. of completed years LEAST OF THE ABOVE WILL BE EXEMPT AS THE CASE MAY BE Basic + DA Fully Exempt Salary means BASIC + DA+ Comm. on fixed % of turnover
  • 5. Example:- Q. Rahul worked for a company for 18 years and 7 months. His company is covered by the Payment of Gratuity Act. At the time of his retirement, his salary was Rs 20,000. He received Rs 8,00,000 as Gratuity from his employer. Sol- Calculation of amount which is exempt from Rs 8,00,000 – lower of the following 3 • 20000 x 19 x 15/26 = Rs 2,19,230 • Rs 10,00,000 • Rs 8,00,000 The amount that is exempt from Gratuity payment for Rahul is Rs 2,19,230 and remaining amount of Rs 8,00,000 – Rs 2,19,230 = 5,80,769 is taxable for Rahul.
  • 6. Example Q. Sunil who works for XYZ Ltd. Retires after 30 years and 9 months of service. He receives Rs 8,00,000 as gratuity. His average monthly salary of 10 months immediately preceding month of retirement is Rs 50,000. Sol- For Sunil the minimum of these amounts shall be exempt from Tax • 50,000 x ½ x 30 = 7,50,000 • 10,00,000 • 8,00,000 Therefore for Sunil Rs 7,50,000 shall be exempt from Tax and he will pay tax on Rs 8,00,000 – 7,50,000 = Rs 50,000. Rs 50,000 shall be taxed and included under the head ‘Income from Salaries’.
  • 7. • Pension received from UNO by the employee or his family member is not taxable. • Pension received by the family after death – Taxable in the hands of recipient under head Other Sources and Deduction of 1/3rd OR ₹15,000/- shall be given. PENSION. . .
  • 8. PENSION Uncommuted (Monthly Pension) i.e. in instalments Commutted i.e. Lump sum TAXABLE FOR ALL Govt. employee Other Employees FULLY EXEMPT 1. The commuted value of 1/3 of the normal pension if he also receives gratuity 2. The commuted value of 1/2 of such pension if he does not receive gratuity
  • 10.
  • 11. • Encashment of leaves by surrendering leave standing to one’s credit is known as LEAVE SALARY. • Leave Salary paid to legal heirs in the case of Death of the employee is not taxable. • Leave Salary during the continuity of employment will be chargeable to tax for all. • However , leave salary is encashed on retirement by a Government employee will fully exempt • But for others it will be exempt up to a limit & balance shall be taxable. EARNED LEAVE SALARY
  • 12. EARNED LEAVE SALARY. . . During the job On Retirement FULLY TAXABLE Govt. Employee FULLY EXEMPT OTHERS Least of the following shall be exempt :- a) Actual amount received b) ₹ 3,00,000/- c) Average Salary of Last 10 months of Job d) Cash equivalent of unavailed leave calculated on the basis of maximum 30 days leave for every year of completed service. Salary means BASIC + DA+ Comm. on fixed % of turnover
  • 13. • Compensation received by a workmen under the Industrial Dispute Act, 1947 or under any Act, Rule, Order, Notification issued at the time of retrenchment, is exempt from tax to the extend of least of the following :- 1. Amount Received 2. ₹ 5,00,000/- (amount specified by the Govt.) 3. 15 days average pay* Salary * Every completed year of Service in excess of 6 months RETRENCHMENT COMPENSATION
  • 14. Example Q. Mr A, is an employee of XYZ Company. Due to ill, he was retrenched by the company. He received Rs 2,50,000. Monthly Salary Rs. 30,000. He served for 5 years and 7 Months. Sol- 1. Amt. Received = 2,50,000 2. Max Amt. 5,00,000 3. 15/30*30000*6years = 90,000 Least of the following 90,000 will exempt so taxable amount is 2,50,000- 90,000= 1,60,000
  • 15. • Compensation received at the time of voluntary retirement or separation is exempt from tax if following condition are satisfied :- – Employees of Central or State Government – Employee of P.S.U. or any other company – Statutory Corporation – Local authority, University – I.I.T. or notified institute of management. • Least of the following shall be exempt : 1. Amount Received 2. ₹ 5,00,000/- 3. a) 3 months Salary * Every completed year of Service b) Salary X balance months of services VOLUNTARY RETIREMENT COMPENSATION If exemption is claimed in one A/Y. . . then exemption is not allowed in another A/Y. . .
  • 16. • Word “Provident” Means to Provide for future • This fund is credited by an amount deducted from the salary every month at a certain rate. • Employer also make his own Contribution • These contributions are invested to earn interest. • The accumulated amount of the scheme (i.e. Credit balance of the scheme) is paid to employee on his retirement or to the family members in the case of death EMPLOYEES PROVIDENT FUND. . . .
  • 17. TYPES OF PROVIDENT FUND 1. • STATUTORY PROVIDENT FUND • Set up under the provisions of Provident Funds Act, 1925 2. • RECOGNIZED PROVIDENT FUND • PF to which Employee’s Provident Fund & Misc. provisions Act, 1952 applies. 3. • UNRECOGNIZED PROVIDENT FUND • When a P.F. is not recognized by the Commissioner of Income Tax.
  • 18. EMPLOYER`S CONTRIBUTION EXEMPTED EMPLOYEE`S CONTRIBUTION TAXABLE HERE (But Deduction u/s 80 c is available) INTEREST EARNED Not treated as Income of the year in which interest is credited. LUMP-SUM PAYMENT EXEMPT FROM TAX (upon the termination of service / on retirement) STATUTORY PROVIDENT FUND
  • 19. RECOGNIZED PROVIDENT FUND EMPLOYER`S CONTRIBUTION EXEMPTED UPTO 12% OF “SALARY” BASIC + DA (UTOE) + COMMISSION EMPLOYEE`S CONTRIBUTION TAXABLE BUT DEDUCTION IS AVAILEBLE U/S 80 C INTEREST EARNED EXEMPTED up to 9.5% Rate of Interest PAYMENT (LUMP-SUM) EXEMPTED IF :- • Employee left the job after atleast 5 years of service • Due to ill health, discontinuance of employers business or reasons beyond control • Balance of EPF is transferred to the new employer
  • 20. UNRECOGNIZED PROVIDENT FUND EMPLOYER`S CONTRIBUTION EXEMPTED EMPLOYEE`S CONTRIBUTION No exemption but deduction U/S 80C. INTEREST EARNED Not taxable in the year in which interest is credited. LUMPSUM PAYMENT : 1. EMPLOYER’S CONTRIBUTION 2. EMPLOYEES CONTRIBUTION 3. INTEREST OF EMPLOYER’S CONT. 4. INTEREST OF EMPLOYEE’S CONT. TAXABLE U/H SALARIES EXEMPT TAXABLE U/H SALARIES TAXABLE U/H OTHER SOURCES