INCOME TAX LAW

AND ACCOUNTS
Income from salaries
INCOMES ON RETIREMENT
Provident fund
Gratuity
Earned Leave Salary
Pension and Commuted Pension
Compensation on Voluntary Retirement
Retrenchment Compensation
 PROVIDENT FUND [Section 10(11)(12)]
The amount received from SPF is fully exempt
The amount received from RPF is fully exempt provided
he was in continuous service for 5 years
The amount received from URPF is treated as follows:
 Out of the lump sum received, share of employer’s
contribution and interest is included in salary
 The share of employee’s contribution is exempt
 Interest on employees contribution is included under the
head “income from other sources”
GRATIUTY[Section 10(10)]
Gratuity is a payment made by employer in return
for service rendered by employee. The treatment
of gratuity is given below:
A. Government employee
Any gratuity received by a government
employee is fully exempt
B. Non-government employees
 1. Covered by the payment of gratuity act 1972
Those employees coming under the provisions of
the payment of gratuity act 1972 will get an
exemption to the extent of the least of the following
15 days salary (15/26 of salary drawn in the last
month prior to retirement) for every completed
year of service or thereof in excess of 6 months or
Rs 2000000 (w.e.f. 29-3-2018) or
Gratuity actually received
Salary for this purpose includes Basic Salary and
D.A(whether as per terms of employment or not)
2. Not covered by the payment of gratuity act 1972
Least of the following is exempt
One-half month’s salary based on average salary for
10 months immediately preceding the month of
retirement for every completed year of service. Or
Rs 2000000 or
Gratuity actually received
Salary for this purpose includes basic salary and D.A,
if given under the terms of employment and
commission based on a fixed percentage of turnover.
ENCASHMENT OF EARNED LEAVE
OR EARNED LEAVE SALARY
[Section 10(10AA)]
The provision of this Act regarding tax treatment
of earned leave salary is given below:
A. Government employees: full amount is exempt
B. Non-government employees:
least of the following is exempt:
Maximum 10 months salary on the basis of
average salary drawn during 10 months
preceding retirement
Amount of salary in the basis of average salary
for the approved period for which earned leave
has not been availed by the employee
Rs 3,00,000
Actual amount received
PENSION AND COMMUTED PENSION
[Section10(10A)]
Pension is taxable under the head salary. Commuted pension is
exempt subject to the following limits:
• Any amount received from the Govt. is fully exempt
• Any payment received from any other employer is exempt to the
extent it does not exceed
a) The commuted value of 1/ 3 of normal pension if he also
receives gratuity
b) The commuted value of 1/2 of normal pension if does not
receive gratuity
Normal pension=The amount receivable if full pension is
commuted
COMPENSATION ON VOLUNTARY
RETIREMENT [Section10(10C)]
When a person take VRS he is eligible for
exemption to the extent of the least of the following
• Three months salary for each completed year of
service
• Salary at the time of retirement multiplied by the
balance of months of service left before the actual
retirement
• Amount actually received
• Rs 5,00, 000
RETRENCHMENT
COMPENSATION[Section 10(10B)]
Any compensation received by a work man at the
time of retrenchment is exempt. Least of the
following is exempt:
• Actual amount received
• 15 days average pay for every completed year
of service or part thereof in excess of 6 months
• Amount specified by the central government
Rs.5,00,000