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Retirement Benefits Tax

The document discusses the tax treatment of various types of retirement benefits in India such as gratuity, pension, leave encashment, provident fund, and annuity. It provides details on the tax exemptions for gratuity received by government employees, employees covered under the Payment of Gratuity Act, and others. It also summarizes the taxability of uncommuted pension, commuted pension, pension received by gallantry award winners, and family pension received by family members of armed forces.

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Arpit Goyal
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95 views18 pages

Retirement Benefits Tax

The document discusses the tax treatment of various types of retirement benefits in India such as gratuity, pension, leave encashment, provident fund, and annuity. It provides details on the tax exemptions for gratuity received by government employees, employees covered under the Payment of Gratuity Act, and others. It also summarizes the taxability of uncommuted pension, commuted pension, pension received by gallantry award winners, and family pension received by family members of armed forces.

Uploaded by

Arpit Goyal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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DIRECT TAXES- INCOME

TAX
Tax Treatment of Retirement Benefits
Various Kinds of Retirement Benefits

1. Gratuity
2. Pension
3. Leave Encashment/ Leave Salary.
4. Provident Fund.
5. Annuity.
Gratuirty
1. Payment of Gratuity Act, 1972.

Section 4 . Payment of Gratuity Act, 1972.


 Gratuity a Statutory Right.

 Non payment of Gratuity.

 Length of Service should be not less than five

years.
 Exception: Death or Disability.
Tax Treatment of Gratuity
1. Government Employee – Fully Exempt.
Section 10 (10) (i) of the Income Tax Act, 1961.
Gratuity
Non Government employee.
 2. Non Government employee Covered under
the Payment of Gratuity Act, 1972- Fully or
partly exempt. Section 10 (10) (ii) of the Income
Tax Act, 1961.
 Least of the Following is Exempt:

a.15 days salary x length of Service.


b. Rs. 20,00,000/-
c. Gratuity actually received.
Gratuity
Non Government employee
3. Non Government employee Not Covered
under the Payment of Gratuity Act, 1972- Fully or
partly exempt. Section 10 (10) (iii) of the Income
Tax Act, 1961.

 Least of the Following is Exempt:


a. Half months salary for each completed year of
Service .
b. Rs. 10,00,000/-
c. Gratuity actually received.
Caselaw.
 Ram Kanwar Rana
vs
ITO (2016) 71 Taxxmann.com (Delhi-Trib)

A Teacher of an University estbalised under the


Act of State or Parliament is Government
Employee.
Gratuity Received after Death.
 Gratuity Due, Sanctioned and paid during Life
time- Taxable/ Can Claim Exempetion.

 Gratuity Due During Lifetime however paid


and sanctioned after death- Taxable/ Can
Claim Exempetion.
 Gratuity Due, Sanctioned and paid after
death- Not Taxable.
Pension Received From UNO

 Section 2 of the U.N. Privileges and Immunities


Act, 1974.

 Fully Exempt.
 CBDT Circular No. 293 dated 10.02.1981.
Uncommuted Pension

 Uncommuted pension to all government and


non government employees is Fully Taxable.
Commuted Pension
 A. Entire amount of commuted pension of
Government Employee- Central Government,
State Government, Local Authority, Statutory
Corporation is fully exempt.

Pension
 Pension to Gallantry Award Winner

Section 10 (18) of the Income Tax Act, 1961- Fully


Exempt.

Veer Chakra, Param Veer Chakra, Mahavir Chakra


or any other notified Gallantry Award Winner.


Family Pension Family Members of
Armed Forces

 Section 10 (19) of the Income Tax Act, 1961-


Fully Exempt.
 A.Y. 2005-2006.
 Death of Such member must have occurred in
opeartional duties.
Disability Pension members of Armed
forces.
 Circular No. 13 of 2019 dated 24.06.2019 issued
by the CBDT.
 Irrespective of Rank
 Disabilty must be attributable to service.
 Entire Disability Pension received is Exempt.
Uncommuted Pension
 Fully Taxable to Both Government and Non
Government Employee.
Commuted Pension
 Govt Employee:
 Entire amount of Commuted Pension of
Government Employee is fully exempt. Section
10(10A)(i) of the Act,1961. Irrespective of
payment of gratuity.


Pension of Non Government Employee:

A. When Gratuity Received: One third of normal


pension. Section 10(10A)(ii) of the Act,1961.

B. When Gratuity Not Received: One Half of the


Normal Pension. Section 10(10A)(ii) of the
Act,1961.
Annuity
 Payment of Annual sum for life.

 Annuity payable is taxable as Salary.

 Annuity received from insurance policy is


taxable as income from other sources.

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