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 .
- Actual amount received
- 15/26*Average Salary of last 3 months* Completed Years of Service (even year greater than 6 month is treated as full year.)
- Amt Specified by Govt i.e. Rs.500000/-
EXAM QUESTION
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.
View answer
Exemption is to the extent of least of the following :
|
(i) Compensation actually received |
Rs 10,00,000 |
|
(ii)Statutory Limit |
Rs 500000 |
|
(i) Amount calculated in accordance with provisions of the Industrial Disputes Act, 1947 = [ 15 / 26 × (20,000 × 3) + (5,000 × 3) / 3 × 30 years ] |
Rs 4,32,692 |
|
Minimum Exempt |
Rs 4,32,692 |
|
Retrenchment compensation received |
Rs 10,00,000 |
|
Less : Exemption |
Rs 4,32,692 |
|
Balance Amount taxable |
Rs 5,67,308 |
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:
- He is a government employee.
- He is a non-government employee, receiving gratuity of Rs 5,00,000 at the time of retirement.
- He is a non-government employee and is not in receipt of gratuity at the time of retirement.
View answer
| ( a) He is a government employee. | ||
| Uncommuted pension received (October – March) | Rs 24,000 | |
| [ (Rs 5,000 × 4 months) + (40% of 5,000 × 2 months) | ||
| Commuted pension received | Rs 3,00,000 | |
| Less : Exempt u/s 10(10A) | Rs 3,00,000 NIL |
| (b) He is a non-government employee, receiving gratuity Rs 5,00,000 at the time of retirement. | |||
| Uncommuted pension received (October – March) | Rs 24,000 | ||
| [(Rs 5,000 × 4 months) + (40% of Rs 5,000 × 2 months)] | |||
| Commuted pension received | Rs 3,00,000 | ||
| Less: Exempt u/s 10(10A) | |||
| (1/3 × Rs 300000 / 60% × 1 ) | Rs 1,66,667 | Rs 1,33,333 | |
| Taxable pension | Rs 1,57,333 | ||
| (c) He is a non-government employee and is not in receipt of gratuity at the time of retirement. | ||||
| Uncommuted pension received (October – March) | Rs 24,000 | |||
| [ (Rs 5,000 × 4 months) + (40% of Rs 5,000 × 2 months)] | ||||
| Commuted pension received | Rs 3,00,000 | |||
| Less: Exempt u/s 10(10A) | ||||
| (1/2 × Rs 3,00,000 / 60% × 100% ) | Rs 2,50,000 | Rs 50,000 | ||
| Taxable pension | Rs 74,000 | |||