Salary Exemptions for Retirement BenefitsSalary Exemptions for Retirement Benefits Under Section 10 for AY 2008 - 2009 Topics Covered in this Page Exemption for Gratuity [Section 10(10)]Exemption for Gratuity Received :
Note: - a. Where gratuity is received more than once, either from more than one employer in the same previous year, or, over several previous years, then the total gratuity exemption cannot exceed the statutory limit, i.e., Rs.3,50,000/-. b. In the case of the Gratuity payment covered by Payment of Act: -
c. In the case of the Gratuity payment NOT covered by Payment of Act: -
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|
| Completed year of service (Ignore Fraction) x 1 month | xxx |
| Less: Leave taken by the employee | xxx --- |
| Leave to the credit of the employee | xxx --- |
Calculate the last drawn salary based on last 10 months average.
| Basic Pay | xxx |
| Dearness Allowance (if terms of employment provide) | xxx |
| Commission as a Fixed Percentage on Turnover | xxx --- |
| Last Drawn salary | xxx --- |
Exemption Available:
1. Leave Salary Received While in Service
Fully Taxable
2. Leave Salary Received On Retirement
(A) Government Employee and cases where amount is received by Legal heirs on the death of employee
Fully Exempt
(B) Other Employees
Least of the following is exempt:
Rs.3,00,000
10 months salary
Cash equivalent of the leave to the credit of the employee
Actual leave salary received
Where leave salary is received more than once, either from more than one employer in the same previous year, or, over several previous years, then the total leave salary exemption cannot exceed the statutory limit, i.e., Rs.3,00,000/-.
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Retrenchment Compensation Exemption
[Section 10(10B)]
Salary Exemption for Retrenchment Compensation Received:
1. Under a scheme approved by Central Government
Fully Exempt
2. Others
Lower of the following is exempt:
Amount determined as per the Industrial Dispute Act, 1947
Rs.5,00,000.
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Salary Exemption for Voluntary Retirement Compensation u/s
[Section 10(10C)]
Salary Exemption for Voluntary Retirement/Separation is available only to assessees, who are employees of the following employers: -
Public Sector Company
Statutory Corporations
Any other Company
University
Indian Institute of Technology
Notified Institute of Management
Any State Government
The Central Government of India
Local Authority
Co-operative Societies
Specially Notified Persons or Any other Institution, having importance throughout India or in any State or States, notified by Central Government of India
Exemption is available only if the Scheme framed by Employer for VR fulfills the following conditions: -
It applies to an employee who has completed 10 years of service or attained the age of 40 years [Condition not applicable to Voluntary Separation Schemes framed by Public Sector Undertakings).
It applies to all employees including workers and executives of a company or of an authority or of a co-operative society but excluding directors of a company or of a co-operative society.
It results in overall reduction in the existing strength of the employees.
The vacancy caused by it is not filled up.
The retiring employees are not employed in another company or concern belonging to the same management.
Voluntary Retirement Compensation is computed as under
Last drawn salary x 3 x completed year of service, Or
Last drawn salary x remaining months of service
For this purpose, Last drawn Salary = (Basic Pay + Dearness Allowance (if terms of employment provide) + Commission as a Fixed Percentage on Turnover) of the last month before Voluntary Retirement.
The quantum of salary exemption is least of the following: -
Last drawn salary x 3 x completed year of service (or) Last drawn salary x remaining months of service, whichever is higher.
Actual voluntary retirement compensation received.
Rs.5,00,000.
Exemption is available only once in the lifetime of an employee.
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Salary Exemptions for Provident Funds
[Section 10(11), 10(12) & 10(13)]
| Particulars | SPF/PPF | RPF | URPF | ASAF |
|---|---|---|---|---|
| Section Reference | 10(11) | 10(12) | - | 10(13) |
| Employer's Contribution to the Fund | Not Taxable | Exempt to the extent of 12% of Salary | Not Taxable in the year of Contribution | Not Taxable |
| Employee's Contribution to the Fund | Deduction u/s 80C available | Deduction u/s 80C available | No Benefit Available | Deduction u/s 80C available |
| Interest Credited to the Fund | Exempt | Exempt up to 9.5% rate of Interest | Not Taxable at the time of Credit | Exempt |
| Lump sum amount withdrawn from the Fund | Exempt | Exempt subject to Note 1 below | Taxable fully as per Note 2 below | Exempt subject to Note 3 below |
Note: -
The accumulated balance due and becoming payable to an employee participating in a Recognised Provident Fund is exempt only under the following circumstances: -
In the case of an employee who has been in service for a continuous period of at least 5 years.
In case the employee has not rendered service for a continuous period of 5 years, then: -
if his retirement is due to
Ill-health
Contraction or discontinuance of the employer's business
Other reasons beyond the control of the employee
The amount of balance transferred on his cessation of employment, from RPF maintained by the former employer to the RPF maintained by the present employer.
Any payment made under the Unrecognised Provident Fund is taxable as under: -
To the extent of Employer's Contribution and Interest thereon, taxable as "Salaries".
To the extent of Employee's Contribution - not taxable. However, Interest thereon is taxable as "Income from Other Sources".
Any payment made from an ASAF is exempt in the following circumstances: -
On the death of a beneficiary; or
By way of refund of contributions on his death; or
To an employee in lieu of or in commutation of an annuity
On his retirement at or
After a specified age or
On his becoming incapacitated prior to such retirement, or
Refund of contributions prior to 01.04.1962, on such event.
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