Provisions of Section-10 of the Indian Income-tax Act relating to exemptions of retirement benefits received by Government employees, public sector employees and private sector employees at the time of retirement from service, under any voluntary retirement scheme and voluntary sepration scheme have been discussed. Thevideo in bi-lingual (Hindi & English) form to make understanding simple.
Most of the employees prior to retirement or after retirement intrested to know about the taxabilty of such benefits under the Income-tax Act.
The following complex provisions of the Income-tax Act have been discussed in very simple langauge:-
(1) Section 10(10) in respect of retirement gratuity payable to Government sector employees, gratuity payable to employees and workmen covered under the Payment of Gratuity Act, 1972 on retirement and such gratuity payable to other employees at the time of retirement.
(2) Section 10(10A) in respect of value of commutation of pension received at the time of retirement by the Government employees including employees of local authority and employees of corporation establishment by the Central or State Governments. Section also deals with commuted value of pension received by the employees of other employers.
(3) Section 10(10AA) in respect of leave encashment received by the Government employees and employees of othe employers at the time of retirement.
(4) Section 10(10C) in respect of any amount received by the employees of specified entities including Central and State Government under any scheme of voluntary retirement framed in accordance with relevant Income-tax Rule and any amount received by the employees of a public sector company under any scheme of voluntary sepration framed in accordance with the relevant Income-tax rule.
(5) Section 10(11) deals with the accumalated balance from the provident fund received under Provident Fund Act, 1925 or any other provident fund set up by the Central Government at the time of retirement .
(6) Section 10(13) deals with the payment of accumalated balance out of the recongnised provident fund at the time of retirement.
The object of video is to create awarness about the exemptions available under the Income-tax in respect of such receipts….(read more)

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Retirement Benefits: When gratuity, commuted pension, provident fund, and leave encashment be taxed?

Retirement is a significant milestone in a person’s life. After years of hard work and dedication, it is finally time to relax and enjoy the fruits of one’s labor. However, along with the joy of retirement comes the intricacies of understanding the tax implications of various retirement benefits.

Among the many retirement benefits that employees receive upon retirement, gratuity, commuted pension, provident fund, and leave encashment are some of the most common ones. While these benefits bring financial security to retirees, it is essential to understand how they are taxed to avoid any surprises when it comes to filing income tax returns.

Gratuity is a lump sum amount paid by an employer to an employee as a token of appreciation for their years of service. According to the Income Tax Act, gratuity received by government employees is fully exempt from tax. In the case of non-government employees, gratuity is exempt from tax up to a certain limit as defined under the Act. Any amount received above this limit is taxable.

Commutated pension refers to a lump sum amount received by an employee in lieu of a portion of their monthly pension. This amount is taxed differently for government and non-government employees. For government employees, commuted pension is fully exempt from tax. However, for non-government employees, only one-third of the commuted pension is tax-free, while the remaining two-thirds is subject to tax.

Provident fund is a retirement benefit that accumulates over the years through regular contributions by both the employee and the employer. The interest earned on the provident fund is tax-exempt, provided that the employee has completed five years of continuous service. If the withdrawal of the provident fund is made before completing five years of service, the entire amount becomes taxable.

Leave encashment refers to the payment received by an employee for unused leave days at the time of retirement. The tax treatment of leave encashment varies depending on whether the employee is a government or non-government employee. For government employees, leave encashment is fully exempt from tax. However, for non-government employees, only a certain portion of the leave encashment amount is tax-free, while the rest is taxable.

In conclusion, understanding the tax implications of retirement benefits is crucial for retirees to effectively plan their finances and avoid any tax-related issues. By knowing when gratuity, commuted pension, provident fund, and leave encashment are taxed, retirees can make informed decisions and ensure that their hard-earned money is not subject to unnecessary tax liabilities. It is advisable for retirees to consult with a tax professional to get a clear understanding of the tax treatment of their retirement benefits and explore any tax-saving options available to them. By doing so, retirees can fully enjoy their retirement years without worrying about tax obligations.

Taxation of Retirement Benefits: How are gratuity, commuted pension, provident fund, and leave encashment taxed? appeared first on Inflation Protection.