Is retrenchment compensation taxable in India?

The retrenchment compensation received by a workman is exempt provided that in general it does not exceed the sum calculated on the basis provided in Section 25F(b) of Industrial Disputes Act, 1947 or any such amount as is specified by the Central Govt. by a Notification, whichever is less. The maximum exemption is Rs.

Is retrenchment pay taxable in India?

Severance pay is taxable in the hands of the employee as profit in lieu of salary under section 17(3) of the Income Tax Act. “Severance pay may be paid as an ex-gratia payment. … In case the compensation is more than ₹5 lakh, the excess amount is taxable.

Is compensation taxable in India?

Enhanced compensation as awarded by courts is taxable under the head ‘Capital Gains’. Interest on compensation as awarded by the courts will be taxable in your hands in the year of receipt of such enhanced compensation under the head ‘Income from Other Sources’.

How is taxable retrenchment compensation calculated?

An amount of exemption available under section 10(10B) of the Income Tax Act– 3. The amount calculated as per the provisions of section 25F(b) of the Industrial Disputes Act, 1947 i.e. an amount equal to 15 days average pay for each completed year of the service or part thereof in excess of 6 months.

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What is retrenchment compensation in India?

Retrenchment is the termination of an employee by an employer for reasons other than a punishment meted out by disciplinary action. Employees terminated in such a manner are financially compensated by the employer. This kind of compensation is known as retrenchment compensation.

How can I avoid paying taxes on severance?

An easy way to pay fewer taxes is to have your severance paid out in two separate years. Ask if you can have the payments spread out so you can avoid taking a huge tax hit in one year. For some people, taking a lump sum can mean owing unexpected money on your taxes.

Is there tax on retrenchment package?

When you are retrenched, your employer may pay you a lump sum for the termination of your services, and this lump sum may qualify as a severance benefit. From 1 March 2011, special tax rates applicable to severance benefits were implemented, where the first R315,000 of the severance benefit was not subject to tax.

Which income is not taxable in India?

Under Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax. However, for individuals and HUFs, an agricultural income of more than Rs. 5000 is added to the total income.

Is salary earned abroad taxable in India?

Income which is earned outside India is not taxable in India. Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO account is taxable for an NRI.

Why is compensation not taxable?

Workers’ compensation is a tax-funded benefit and the main reason why it is exempt from taxes in the overwhelming majority of cases. Otherwise, paying taxes from this benefit would be feeding the money back into the system.

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What compensation is paid in case of retrenchment?

While effecting retrenchment of the workmen, it is obligatory on the part of the employer to pay retrenchment compensation at the rate of 15 days wages (for every completed yaer) to be calculated at the last drawn salary of an employee.

The retrenchment procedure as laid down in the Labour Relations Act (LRA) must be followed properly and in good faith by the employer. The employer must also prove that he/she has shared with the targeted employees (or their representatives) all documentary and other information pertinent to the retrenchment.

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