The retrenchment compensation means the compensation paid under Industrial Dispute Act, 1947 or under any act, order, rule or notification issued under any law. It include compensation paid on transfer of employment under Section 25F or closing down of an undertaking under section 25FF of Industrial Dispute Act, 1947 .
It may be noted that compensation on account of termination and due to modification in terms and condition of employment would be taxable as “profit in lieu of salary”. However, Section 10(10B) certain exemption is provided with respect to retrenchment is least of the following :
Amount calculated in respect of provisions of section 25F of Industrial Dispute Act, 1947.
An amount not less than 5,00,000 as notified by central government .
Gratuity received during the period of service is fully taxable for both Government employees and private employees.
Generally, employees are allowed to take leave during the term of their employment. Employees can avail the leave or in case leave is not availed, it is either lapsed or accumulated for future, or encashed at the yearend or during retirement. The leave encashment received from employer would form a part of salary.
Leave encashment received during service period is taxable for both Government employees and private employees.
However, some concession is given for the leave encashment received during retirement. Section 10(10AA) says that:
1 : Leave encashment received by employees of Central Government / Local Authorities / Members of Civil Service during retirement is fully exempt from tax.
2 : For other employees the amount of leave encashment is exempt is least of the following :
Maximum amount of 3,00,000
Leave encashment actually received
10 months salary ( on the basis of average of last 10 months salary drawn )
Cash equivalent of leave (based on average of 10 month salary immediately preceding date of retirement) to the credit of the employee during retirement or death. Earned leave encashment cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired.
Salary = Basic pay + Dearness allowance (if agreement of employment so provides) + commission as fixed % of turnover
If employee is receiving leave encashment from two employers then total exemption of leave encashment shouldn’t exceed 3,00,000
If employee had received leave encashment from former employer then maximum amount of 3,00,000 should be deducted from such exemption availed during calculation of exemption of leave encashment received from present employer .
Average salary is to be calculated of 10 month immediately preceding the date of retirement of the employee.
Generally, gratuity is voluntary payment from employer to employee is appreciation of service rendered by employee. Now-a-days gratuity payment is applicable to all employees. In fact employees and employer enters into an agreement for gratuity payments.
As gratuity received from employer is result of service rendered to them it is taxed under income head SALARY.
Certain exemption are allowed in respect of gratuity [Section 10(10)]. They are :-
1 : Retirement gratuity received under Pension Code or Regulations applicable to member of Defence Service is exempt from tax.
2 : If employees of Central Government / Local Authorities / Members of Civil Service receives any death-cum-retirement gratuity then it is fully exempt from tax.
3 : For other employees :-
i) If covered by payment of Gratuity Act, 1972.
Any death-cum-retirement gratuity is exempt upto an extent of least of the following:-
(a) If covered by payment of Gratuity Act, 1972.
(b) Gratuity actually received
(c) 15 days salary based on last drawn salary for each year of service or part there of in excess of 6 months i.e.
15/26 * (last drawn salary) * (no. of year of service)
NOTE : - Salary = Basic Pay + Dearness Allowance (if allowed). Number of days in a month is assumed as 26.
ii) If not covered by Payment of Gratuity Act , 1972
Any death-cum-retirement gratuity is exempt upto an extent to least of the following :-
(a) Maximum limit 20,00,000
(b) Gratuity actually received
(c) Half month’s salary (based on last 10 months average salary immediately preceding the month of retirement or death) for each completed year of service i.e.
½ * (average salary of 10 months) * (no. of years of service)
NOTE : - Salary = Basic Pay + Dearness Allowance (if allowed) + Commission as fixed % of turnover
Further, Income Tax Act, 1961 says that :-
1 : Gratuity received during the period of service is fully taxable for both Government employees and private employees.
2 : When gratuity is received from two or more employers in the same year then aggregate amount of gratuity exempt cannot exceed 20,00,000.
3 : When gratuity received by any former employer in earlier year and now gratuity is received from other employer then 20,00,000 should be reduced by the gratuity exemption allowed earlier.
Goods and Service Tax (GST) is a tax on supply of goods or services or both except for supply of alcoholic liquor for human consumption. GST is an indirect tax imposed to subsume many indirect taxes such as central excise duty, sales tax, service tax, entertainment tax etc. GST is a consumption based tax i.e. it is ultimately borne by consumers of goods or services. It was implemented in India (except J&K) with effect from 1st July, 2017. It was implemented in J&K with effect from 8th July, 2017. GST was developed with a concept of ONE NATION ONE TAX. GST is a destination based tax i.e. tax to be levied by destination place of supply.
India imposed dual model of GST i.e. GST is imposed and levied by both Central Government and State Government. CGST is Central GST levied by Central Government. SGST is State GST levied by State. IGST is Inter GST levied by Central Government for interstate supplies. Interstate supply means supply of goods or services or both between two states, it also includes import to India. Tax rates for supply is same for CGST and SGST.
Benefits of GST :-
Reduction in price due to elimination of cascading effect i.e. tax on tax.
As GST subsumed many taxes leading to simpler tax regime resulting to easy tax compliance.
GST will lead to reduction in compliance cost as multiple records for variety of taxes will not be needed.
GST will result in simplified and automated procedure for registration, returns, refunds and tax payments. All interaction are to be done through GST portal leading to lesser public interaction.
GST is expected to bring increase in Government revenue as it will increase taxpayer compliances.
GST will help to create ONE NATION ONE MARKET giving boost to foreign investment and MAKE IN INDIA campaign.
GST aims to make unified national market with common taxes and procedures and remove economic barriers.
President of India constituted GST Council for making recommendation on various topics to Government. It was notified with effect from 12th September, 2016. The Chairman of this council is Union Finance Minister and members are Union Minister of State uncharged of revenue or finance and State Finance Ministers.
Annuity : If a person invest some money to receive series of equal annual sums, such annual sums is annuity in hand of investor. Annuity received from present employer is taxed as “salary”. Annuity received from past employer is taxed as “profit in leu of salary”. Annuity received from any other person is treated as “income from other sources”.
Pension : It is a periodical payment made by government or company or any other employer to his employee in consideration of his past services payable after retirement of the employee.
Pension is of two types :
Uncommuted pension : Uncommuted pensions are pensions received periodically. It is FULLY TAXABLE for both government and non-government employees.
Commuted pension : It means lumpsum amount taken by commuting whole or part of pension.
Section 10(10A) says that :-
If employees of Central Government / Local Authorities / Statutory Corporation / Members of Civil Service / Defence Service receives any commuted pension are full exempt from tax.
For other employees :
1 : If the employee is in receipt of gratuity then exemption of commuted pension will be calculated as 1/3rd of [commuted pension / commutation % * 100%].
2 : If the employee does not receive gratuity then exemption of commuted pension will be calculated as ½ of [commuted pension / commutation% *100%].
Further, if judges of Supreme Court or High Court receives any commuted pension then such pensions are fully exempt from tax.
If any commuted pension is received by any INDIVIDUAL out of annuity plan of Life Insurance Corporation from a fund setup by that corporation, is fully exempt from tax.