ITR
Relief on compensation on termination
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Facts
Compensation received on termination of employment is taxable as salary. Form 10E has an Annexure for such compensation, which can give relief where it relates to long service.
Provisions and law
- Sec 89 (now Sec 157)Relief when salary or family pension is received in arrears or in advance
- Sec 17 (now Sec 16 to 18)Profits in lieu of salary include compensation on termination
Analysis
If compensation of ₹10,00,000 is paid for ending a job after 8 years, taxing it in one year can push income into the top slab. The Annexure computes relief based on the earlier years' average rate, subject to the conditions in that Annexure. Any part exempt under a voluntary retirement scheme is handled differently, so check which applies.
Conclusion
- Get the employer's letter showing the nature of the payment
- Check whether any exemption applies first
- Fill the compensation Annexure in Form 10E
- Claim relief in the ITR
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