about compensation amount
This query is : Resolved
31 July 2016
few employee ( of kirlosker company)who filed a plea in high court for their sudden termination and asking compensation. 10 year before. now they got rs. 3.50 lakh each . now my question is is this amount is fully taxabel are exampted. please guide me which section of income tax was applied.
14 July 2024
The taxability of the compensation received by the employees from Kirloskar Company depends on the nature of the compensation and the circumstances under which it was received. Here’s a general overview:
### Taxability of Compensation:
1. **Nature of Compensation:**
- If the compensation is received due to sudden termination and is categorized as severance pay or compensation for loss of job, it is typically taxable under the Income Tax Act.
2. **Tax Treatment:**
- **Fully Taxable:** Compensation received in lieu of employment, such as severance pay or compensation for loss of job, is fully taxable under the head "Income from Salaries" or "Income from Other Sources", depending on the nature of employment.
- **Exempted Amounts:** Certain exemptions might apply under specific circumstances, such as exemptions under Section 10 or Section 89 of the Income Tax Act, which are based on the reason for termination, years of service, and other factors.
3. **Section Applicable:**
- If the compensation is considered part of the regular salary structure or as a settlement amount, it would typically fall under the provisions of Section 15 of the Income Tax Act, which deals with salaries.
- If there are specific exemptions applicable, such as under Section 10 or Section 89, they would be considered to determine the taxable portion.
4. **Tax Calculation:**
- The amount received (Rs. 3.50 lakh each) would be added to the individual’s total income for the year in which it was received.
- Income tax would be calculated based on the individual’s total income, including this compensation amount, at the applicable slab rates.
### Conclusion:
Without specific details about the nature of the compensation (whether it’s severance pay, compensation for termination, etc.) and the grounds on which it was awarded (whether it includes any exempt components), it’s challenging to determine the exact tax treatment. However, in most cases, compensation received due to sudden termination is fully taxable unless specific exemptions apply.
It’s advisable for the employees to consult with a tax advisor or chartered accountant who can review the specifics of their case and provide personalized advice based on the details provided by the court order and compensation award.
### Taxability of Compensation:
1. **Nature of Compensation:**
- If the compensation is received due to sudden termination and is categorized as severance pay or compensation for loss of job, it is typically taxable under the Income Tax Act.
2. **Tax Treatment:**
- **Fully Taxable:** Compensation received in lieu of employment, such as severance pay or compensation for loss of job, is fully taxable under the head "Income from Salaries" or "Income from Other Sources", depending on the nature of employment.
- **Exempted Amounts:** Certain exemptions might apply under specific circumstances, such as exemptions under Section 10 or Section 89 of the Income Tax Act, which are based on the reason for termination, years of service, and other factors.
3. **Section Applicable:**
- If the compensation is considered part of the regular salary structure or as a settlement amount, it would typically fall under the provisions of Section 15 of the Income Tax Act, which deals with salaries.
- If there are specific exemptions applicable, such as under Section 10 or Section 89, they would be considered to determine the taxable portion.
4. **Tax Calculation:**
- The amount received (Rs. 3.50 lakh each) would be added to the individual’s total income for the year in which it was received.
- Income tax would be calculated based on the individual’s total income, including this compensation amount, at the applicable slab rates.
### Conclusion:
Without specific details about the nature of the compensation (whether it’s severance pay, compensation for termination, etc.) and the grounds on which it was awarded (whether it includes any exempt components), it’s challenging to determine the exact tax treatment. However, in most cases, compensation received due to sudden termination is fully taxable unless specific exemptions apply.
It’s advisable for the employees to consult with a tax advisor or chartered accountant who can review the specifics of their case and provide personalized advice based on the details provided by the court order and compensation award.
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