Hi,I have lost job last year at the age of 53. I am currently not working anywhere. I have received Retrenchment Compensation from employer. Can I claim exemption from tax under Section 10(10B) .I am not sure if employer has shown it as retrenchment or not. Please suggest if I can show received amount as Retrenchment Compensation & claim income tax benefit.

Ans: Any kind of compensation received as part of your employment will be taxable as salary income. This should be filed under the head of salary income.

The consultancy income is taxable under the head of Business or Profession.  This head allows you to reduce expenses linked to business or profession like rent of office, telephone, conveyance expense, repair and maintenance, depreciation of vehicle for business use, depreciation on compute, photocopies, printers etc. If you use these provisions, it will be more tax efficient than salary income.

Ans: Leave encashment will be exempt upto amount calculated as least of following as per Budget proposal for FY 23 24

i) 25,00,000
ii) Actual leave encashment amount
iii) Average salary of last 10 months
iv) Salary per day * unutilised leave (considering maximum 30 days leave per year) for every year of completed service

Ans: Hello,

I understand your concern about the tax implications of your separation compensation.

Under Section 10(10C) of the Income Tax Act, any amount received by an employee on voluntary retirement or separation is exempt from tax, subject to a maximum limit of Rs. 5,00,000. So, yes, you can show your compensation under this section to get a tax benefit.

However, please note that if you claim exemption under Section 10(10C), you will not be eligible for relief under Section 89. Section 89 provides relief when salary or compensation is received in arrears or advance, but it cannot be claimed in conjunction with the exemption under Section 10(10C).

So, in essence, you can get the benefit of either Section 10(10C) or Section 89, but not both. I would recommend consulting with a tax advisor to understand the best approach for your specific situation.

I hope this helps!

Ans: Dear Kapoor,

Thank you for reaching out with your query regarding the termination of employment for your employees. Let’s delve into the specifics of retrenchment compensation and gratuity:

Gratuity:
Gratuity is a statutory benefit provided to employees who have rendered continuous service for not less than five years.
It becomes payable upon:
Superannuation,
Retirement or resignation, or
Death or disablement due to accident or disease.
The calculation for gratuity is based on 15 days’ average pay for every completed year of continuous service1.
Retrenchment Compensation:
Retrenchment compensation is intended to provide relief for the sudden and unexpected termination of employment.
It is governed by the Industrial Disputes Act, 1947.
Conditions precedent to retrenchment include:
Providing one month’s notice (or payment in lieu of notice) to the employee.
Paying compensation equivalent to 15 days’ average pay for every completed year of continuous service (or any part thereof in excess of six months).
Serving notice to the appropriate government authority1.
Eligibility:
Since your employees have been in continuous service since 2000, they meet the criteria for both gratuity and retrenchment compensation.
Therefore, you would need to provide both benefits to them.
Important Note:
The retrenchment compensation paid for the past year cannot be set off against gratuity.
Once an employee is terminated and eligible to receive gratuity, it should be paid separately, without adjusting any prior payments made while the employee was still in service.
In summary, you are required to pay both retrenchment compensation and gratuity to your employees. If you have any further questions or need additional clarification, feel free to ask.

Ans: This will reflect in your Form 16 and will need to be captured in he ITR correctly.