Exgratia receipt on cessation of Job is a capital receipt

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Exgratia payments received when a job ceases due to unit closure, especially when re-employment isn't possible, are generally considered taxable. While Section 10(10C) offers exemptions for voluntary retirement or separation up to £500,000, any additional compensation or severance pay is typically taxed as 'Profits in lieu of salary' under Section 17(3) of the Income Tax Act.

R.Vedanaryanan

R.Vedanaryanan (Querist)
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08 September 2021 Exgratia payment made to an assessee in case of cessation of employment of a unit getting closed and there is no option for re employment due to age and technical expertise will tantamount to capital receipt and not taxable ?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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08 September 2021 The exemption provided by Section 10(10C) of the Act is in respect of amount received on the voluntary retirement or termination of the services of an employee in accordance with any scheme or scheme of voluntary retirement or in the case of public sector company, scheme of voluntary separation to the extent such amount does not exceed Rs 5 lakh.
Otherwise, Any additional compensation/ severance pay received by an employee from employer is taxed as ‘Profits in lieu of salary’ under Section 17(3) of Income Tax Act. Any compensation due to or received by a person from his employer in connection with termination of his employment is taxable as salary in the hands of the employee at the applicable slab rates. The tax treatment is the same if you receive ex gratia payment on account of shutting down of company or lay-offs.