1  It is the compensation received by employee at the time he leaves service .

2. This compensation may be received as per

  • Indusial dispute act
  • or as per any other act
  • or as per court order
  • or as per his employment terms .

3 Least of the following three is exempt .

  1. Actual amount received
  2. 15/26*Average Salary of last 3 months* Completed Years  of Service (even year greater than 6 month is treated as full year.)
  3. Amt Specified by Govt i.e. Rs.500000/-



Question 1

Mr. Garg received retrenchment compensation of Rs 10,00,000 after 30 years 4 months of service. At the time of retrenchment, he was drawing basic salary Rs 20,000 p.m.; dearness allowance Rs 5,000 p.m. Compute his taxable retrenchment compensation.

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Question 2

Mr. Sagar retired on 1.10.2015 receiving Rs 5,000 p.m. as pension. On 1.2.2016, he commuted 60% of his pension and received Rs 3,00,000 as commuted pension. You are required to compute his taxable pension assuming:

  1. He is a government employee.
  2. He is a non-government employee, receiving gratuity of Rs 5,00,000 at the time of retirement.
  3. He is a non-government employee and is not in receipt of gratuity at the time of retirement.
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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.