Sub: Topic: -

Taxation
Retirement benefits

Sub topic:- Voluntary retirement compensation Prepared by: Roll no:Samkit.N.Shah

147

Subject to:- BBA PROGRAMME DIRECTOR,

FACULTY OF COMMERCE, M.S.UNIVERSITY,BARODA.

Retirement Benefits
Retirement Benefit is the total benefit a member receives after retirement. Retirement benefits received by an employee are taxable under the head Salary. Thus, the employer must take these benefits into account while computing the Tax Deducted at Source (TDS) at the time of retirement of an employee. Some retirement benefits are fully or partially exempt from tax.

The retirement benefits are as follows:1. Pension Sec10(10A) 2. Gratuity Sec10(10) 3. Leave encashment Sec10(10AA) 4. Voluntary Retirement compensation Sec10(10C) 5. Payment from provident fund Sec10(11)&10(12) 6. Payment from superannuation fund Sec 10(13) 7. Retrenchment benefits Sec10(10B)

Compensation received at the time of Voluntary Retirement [Sec.10 (10C)].

Compensation received at the time of voluntary retirement is exempt from tax if the following conditions are satisfied:1. Compensation received at the time of voluntary retirement or separation 2. Compensation is received by an employee of the following undertakings:i) An authority established under a central, state or provincial act; ii) Local authority; iii) University; iv) An Indian institute of technology; v) The state government; vi) The central government; vii) A notified institute having importance throughout India or any state (i.e. international crops research institute for the semi-arid tropics, govt. tool room & training centre,Banglore); viii) Notified institute of management (i.e. IIM-A); ix) Public sector company; or x) Any company or a co-operative society.

3. Compensation is received in accordance with the scheme of voluntary retirement/separation which is framed in accordance with prescribed guidelines 4. Maximum amount of exemption is Rs. 5, 00,000. 5. Where exemption has been allowed to him in relation to any other assessment year.

GUIDELINES:The guidelines for the purpose of section 10(10c) have been laid down in rule 2BA of the income tax Rules. The guidelines provide that the scheme of voluntary retirement should be in accordance with the following requirements, namely:A.It applies to an employee who has completed 10 years of service or completed 40 years of age(this conditition is, however, not applicable in the case of an employee of a public sector company at the time of voluntary separation); B. It applies to all employees(by whatever name called), including workers and executives of a company or authority or co-operative society excepting directors of a company or a co-operative society; C. The scheme of voluntary retirement or separation has been drawn to result in overall reduction in the existing strength of the employees; D.The vacancy caused by voluntary retirement is not to be filled up, nor the retiring employee is to be employed in another company or concern belonging to the same management; and E. The amount receivable on account of voluntary retirement of the employees does not exceed 1) The amount equivalent to three months salary for each completed year of service, or

2) Salary at the time of retirement multiplied by the balance months of service left before the date of retirement on superannuation.

THE FOLLOWING POINTS SHOULD ALSO KEEP IN VIEW:

Approval of such scheme of voluntary retirement is not required. Employers can frame different scheme of voluntary retirement for different classes of their employees. In salary only three things are involved 1) basic pay, 2) D.A forming part of salary, 3) commission based on fixed % of turnover achieved by an employee as per terms of contract but it doesnt include any other allowance and perquisite. Relief under section drawn 89 is admissible in respect of amount received by the assessee-employee from employer at the time of voluntary retirement even if exemption is claimed under section 10(10C).