Allowance/perquisites
to Government employee outside India [Section 10(7)]
As per section 10(7), any
allowances or perquisites paid or allowed as such outside India by the
Government to a citizen of India for rendering service outside India is exempt
from tax.
As per section 10(8),
remuneration received directly or indirectly by an individual, from the foreign
Government in connection with a co-operative technical assistance programmer and
projects in accordance with an agreement entered into by the Central Government
and such foreign Government, is exempt from tax. Further, exemption is
available in respect of any other income of such an individual which accrues or
arises outside India and is not deemed to accrue or arise in India, provided
such individual is required to pay income-tax/ social security tax to the
foreign Government.
Remuneration or fees received by a
non-resident consultant/its foreign employees [Section 10(8A), (8B)]
Under section 10(8A),
(a) remuneration or fees received by a consultant* directly or indirectly out
of the funds made available to an international organisation, under a technical
assistance agreement between such organisation and the Government of a foreign
State and (b) any other income which accrues or arises to him outside India and
is not deemed to accrue or arise in India, in respect of which such consultant
is required to pay income-tax/social security tax to the foreign Government of
the country of his origin, is exempt from tax.
*Consultant means any individual who is either not a citizen
of India, or being a citizen of India, is not ordinarily resident in India or
any other person who is a non-resident and is engaged by the international
organization for rendering technical services in India in accordance with an agreement
entered into by the Central Government and the said international organization
and the agreement relating to engagement of consultant is approved by the
prescribed authority.
Section 10(8B) grants
similar exemption to the employee of the above discussed consultant, if such
employee is either not a citizen of India or being a citizen of India, is not
ordinarily resident in India and the contract of his service is approved by
prescribed authority before the commencement of his service.
As per section 10(9),
the income of any member of the family of any such individual as is referred to
in section 10(8)/(8A)/(8B) accompanying him to India, which accrues or arises
outside India and is not deemed to accrue or arise in India, in respect of
which such member is required to pay any income or social security tax to the
Government of that foreign State or country of origin of such member, as the case
may be, is exempt from tax.
Death-cum-retirement
gratuity received by Government servants [Section 10(10)(i)]
Section 10(10)(i) grants exemption to gratuity received by
Government employee (i.e., Central Government or State Government or local
authority).
Gratuity received by
a non-Government employee covered by Payment of Gratuity Act, 1972 [Section
10(10)(ii)]
As per section 10(10)(ii), exemption in respect of gratuity
in case of employees covered by the Payment of Gratuity Act, 1972 will be lower
of following :
15 days’ salary × years of service.
Maximum amount specified, i.e., Rs. 20,00,000*.
Gratuity actually
received.
* Limit increased from Rs. 10 lakhs to Rs. 20 lakhs vide
Notification No. 1420(E), dated 29-3- 2018. Note:
1) Instead of 15 days’ salary, only 7 days salary will be
taken into consideration in case of employees of seasonal establishment.
2) 15 days’ salary = Salary last drawn × 15/26
3) Salary for this purpose will include basic salary and
dearness allowance only. Items other than basic salary and dearness allowance
are not to be considered.
4) In case of piece rated employee, 15 days’ salary will be
computed on the basis of average of total wages (excluding overtime wages)
received for a period of three months immediately preceding the termination of
his service.
5) Part of the year, in excess of 6 months, shall be taken
as one full year.
As per section 10(10)(iii), exemption in respect of gratuity
in case of employees not covered by the Payment of Gratuity Act, 1972 will be
lower of following :
Half month’s salary for each completed year of service, i.e.,
·
[Average monthly salary × ½] × Completed years of service.
Rs. 10,00,000.
Gratuity actually received.
Note:
1) Average monthly salary is to be computed on the basis of
average of salary for 10 months immediately preceding the month of retirement.
2) Salary for this
purpose will include basic salary, dearness allowance, if the terms of service
so provide and commission based on fixed percentage of turnover achieved by the
employee.
3) While computing years of service, any fraction of a year
is to be ignored.
As per section 10(10A), any commuted pension, i.e.,
accumulated pension in lieu of monthly pension received by a Government
employee is fully exempt from tax. Exemption is available only in respect of
commuted pension and not in respect of un-commuted, i.e., monthly pension.
Exemption in respect of commuted pension in case of a non-Government employee
will be as follows:
· If the employee receives gratuity, one third
of full value of commuted pension will be exempt from tax under section
10(10A).
·If
the employee does not receive gratuity, one half of full value of commuted
pension will be exempt from tax under section 10(10A).
Leave salary [Section
10(10AA)]
As per section 10(10AA), leave encasement by a Government
employee at the time of retirement (whether on superannuation or otherwise) is
exempt from tax. In the hands of non-Government employee exemption will be
least of the following:
1. Period of earned
leave standing to the credit in the employee’s account at the time of
retirement (*) × Average monthly salary ($).
2. Average monthly
salary ($) × 10 (i.e., 10 months’ average salary).
3. Maximum amount as specified by the Government, i.e., Rs.
3,00,000.
4. Leave encasement actually received at the time of
retirement.
(*)Leave credit to the account of the employee at the time
of retirement should be restricted to 30 days per year of service if leave
entitlement as per service rules exceeds 30 days per year of actual service.
($) Salary for the above purpose means average salary drawn
in the past ten months immediately preceding the retirement (i.e., preceding
the day of retirement) and will include basic salary, dearness allowance (if
considered for computing all the retirement benefits) and commission based on
fixed percentage of turnover achieved by the employee.
Apart from the above items, salary for this purpose does not
include any other allowances or perquisites.
Retrenchment
compensation [Section 10(10B)]
As per section 10(10B), compensation received at the time of
retrenchment is exempt from tax to the extent of lower of the following:
(a) An amount calculated in accordance with the provisions
of section 25F(b) of the Industrial Dispute Act, 1947; or
(b) Maximum amount specified by the Central Government (Rs.
5,00,000);
(c) Actual amount received.
Under the Industrial
Dispute Act, a workman is entitled to retrenchment compensation, equal to 15
days’ average pay for each completed year of continuous service or any part in
excess of six months.
Compensation in excess of aforesaid limits is taxable as
salary. However, the aforesaid limit is not applicable in cases where
compensation is paid under any scheme approved by the Central Government.
Compensation on
account of any disaster [Section 10(10BC)]
Any amount received
from the Central Government or State Government or a Local Authority by an
individual or his legal heirs as compensation on account of any disaster is
exempt from tax. However, no deduction is available in respect of the amount
received or receivable to the extent such individual or his legal heirs has
been allowed a deduction under the Act on account of loss or damage caused due
to such disaster. Disaster here means any disaster due to any natural or
man-made causes or by accident/negligence which results in substantial loss of
human life or damage to property or environment and the magnitude of such
disaster is beyond coping capacity of community of the affected area.
Payment at the time
of voluntary retirement [Section 10(10C)]
As per section 10(10C), any compensation received at the
time of voluntary retirement or termination of service is exempt from tax, if
the following conditions are satisfied:
·Compensation
is received at the time of voluntary retirement or termination (or in the case
of an employee of public sector Company, at the time of voluntary separation).
·
Compensation is received by an employee of following undertakings
a) public sector company ; or
b) any other company
; or
c) an authority established under a Central, State or
Provincial Act ; or
d) a local authority ; or
e) a co-operative society ; or
f) a University established or incorporated by or under a
Central, State or Provincial Act and an institution declared to be a University
under section 3 of the University Grants Commission Act, 1956 (3 of 1956) ; or
g) an Indian
Institute of Technology within the meaning of clause (g) of section 3 of the
Institutes of Technology Act, 1961 (59 of 1961) ; or
h) any State
Government; or
i) the Central Government; or
j) Notified
institutes having importance throughout India or in any State or States,
k) Notified institute
of management
·Compensation
is received in accordance with the scheme of voluntary retirement/separation,
which is framed in accordance with guidelines prescribed under Rule 2BA of
Income-tax Rules, 1962*.
·Maximum
amount of exemption is Rs. 5,00,000.
· Where exemption is allowed to an employee
under section 10(10C) for any assessment year, no exemption under this section shall be
allowed to him for any other assessment year.
·With
effect from assessment year 2010-11, section 10(10C) has been amended to
provide that where any relief has been allowed to an assessee under section 89
for any assessment [As amended by Finance (No. 2) Act, 2019] year in respect of
any amount received or receivable on his voluntary retirement or termination of
service or voluntary separation, no exemption under section 10(10C) shall be
allowed to him in relation to such or any other assessment year.
*Guidelines
prescribed under Rule 2BA of Income-tax Rules. 1962
Voluntary retirement scheme should be framed in accordance
with the following guidelines:
i.
it should apply to an employee who has completed
10 years of service or completed 40 years of age. This requirement would not be
in case of amount received by an employee of a public sector company under the
scheme of voluntary separation framed by such public sector company.
ii.
it should
apply to all employees (by whatever name called) including workers and
executives of a company or of an authority or of a co-operative society, as the
case may be, excepting directors of a company or of a co-operative society;]
iii.
The scheme of voluntary retirement or voluntary
separation should be drawn to result in overall reduction in the existing
strength of the employees;
iv.
The vacancy caused by the voluntary retirement
or voluntary separation is not to be filled up;
v.
The retiring employee of a company shall not be
employed in another company or concern belonging to the same management
vi.
The amount receivable on account of voluntary
retirement or voluntary separation of the employee does not exceed the amount
equivalent to –
-3 months salary* for each completed year of service or
- salary at the time of retirement multiplied by the balance months of
service left before the date of his retirement
*Salary
for this purpose will include basic salary, dearness allowance, if the terms of
service so provide and commission based on fixed percentage of turnover
achieved by the employee.
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