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Benefits available to Salaried Persons under Income Tax Act

D. Retirement Benefits

S.No.ParticularsBenefits
(a) Leave Encashment
1Encashment of unutilized earned leave at the time of retirement of Government employees
U/S 10(10AA)
Fully Exempt
2Encashment of unutilized earned leave at the time of retirement of other employees (not being a Government employee)
U/S 10(10AA)
Least of the following shall be exempt from tax:
a) Amount actually received
b) Unutilized earned leave* X Average monthly salary
c) 10 months Average Salary**
d) Rs. 3,00,000
*While computing unutilized earned leave, earned leave entitlements cannot exceed 30 days for each year of service rendered to the current employer
**Average salary = Average Salary*** of last 10 months immediately preceding the retirement
***Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission
(b) Retrenchment Compensation
1Retrenchment Compensation received by a workman under the Industrial Dispute Act, 1947(Subject to certain conditions).
U/S 10(10B)
Least of the following shall be exempt from tax:
a) an amount calculated as per section 25F(b) of the Industrial Disputes Act, 1947;
b) Rs. 5,00,000; or
c) Amount actually received
Note:
i.Relief under Section 89(1) is available
ii. 15 days average pay for each completed year of continuous service or any part thereof in excess of 6 months is to be adopted under section 25F(b) of the Industrial Disputes Act, 1947.
(G)ratuity
1Gratuity received by Government Employees (Other than employees of statutory corporations)
U/S 10(10)(i)
Fully Exempt
2Death -cum-Retirement Gratuity received by other employees who are covered under Gratuity Act, 1972 (other than Government employee) (Subject to certain conditions).
U/S 10(10)(ii)
Least of following amount is exempt from tax:
1. (*15/26) X Last drawn salary** X completed year of service or part thereof in excess of 6 months.
2. Rs. 10,00,000
3. Gratuity actually received.
*7 days in case of employee of seasonal establishment.
** Salary = Last drawn salary including DA but excluding any bonus, commission, HRA, overtime and any other allowance, benefits or perquisite
3Death -cum-Retirement Gratuity received by other employees who are not covered under Gratuity Act, 1972 (other than Government employee) (Subject to certain conditions).
U/S 10(10)(iii)
Least of following amount is exempt from tax:
1. Half month's Average Salary* X Completed years of service
2. Rs. 10,00,000
3. Gratuity actually received.
*Average salary = Average Salary of last 10 months immediately preceding the month of retirement
** Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission
(d) Pension
1Pension received from United Nation Organization by the employee of his family members
U/S -
Fully Exempt
2Commuted Pension received by an employee Central Government, State Government, Local Authority Employees and Statutory Corporation
U/S 10(10A)(i)
Fully Exempt
3Commuted Pension received by other employees who also receive gratuity
U/S 10(10A)(ii)
1/3 of full value of commuted pension will be exempt from tax
4Commuted Pension received by other employees who do not receive any gratuity
U/S 10(10A)(iii)
1/2 of full value of commuted pension will be exempt from tax
5Family Pension received by the family members of Armed Forces
U/S 10(19)
Fully Exempt
6Family pension received by family members in any other case
U/S 57(iia)
33.33% of Family Pension subject to maximum of Rs. 15,000 shall be exempt from tax
(e) Voluntary Retirement
1Amount received on Voluntary Retirement or Voluntary Separation (Subject to certain conditions)
U/S 10(10C)
Least of the following is exempt from tax:
1) Actual amount received as per the guidelines i.e. least of the following
a) 3 months salary for each completed year of services
b) Salary at the time of retirement X No. of months of services left for retirement; or
2) Rs. 5,00,000
(f) Provident Fund
1Employee's Provident Fund
U/S -
For taxability of contribution made to various employee's provident fund and interest arising thereon see Note .

Note

Tax treatment in respect of Employers Contribution made to and payment from it are summarized below:

  1. Statutory provident fund - Fully Exempt
  2. Recognized provident fund - Exempt only to the extent of 12% of salary*
  3. Unrecognized provident fund -Fully Exempt

* Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits) + turnover based commission

Payment from recognized provident fund shall be exempt in the hands of employees in following circumstances:

a) If employee has rendered continue service with his employer (including previous employer, when PF account is transferred to current employer) for a period of 5 years or more

b) If employee has been terminated because of certain reasons which are beyond his control (ill health, discontinuation of business of employer, etc.)











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