Retirement benefits
This query is : Resolved
31 March 2016
tax treatment of money received from benovelent fund in case of death of employee in the hands of legal heirs
11 April 2016
Exempt if fund is approved by Comm of Income tax.
Message likes :
1 times
24 April 2016
can you specify any particular section in this regard
21 July 2025
The money received from a benevolent fund by legal heirs in case of death of an employee is exempt from income tax, provided certain conditions are met.
✅ Legal Position & Tax Treatment
While there is no specific section in the Income Tax Act, 1961, that directly mentions "benevolent fund," the exemption generally applies under general principles and judicial precedents, and sometimes under Section 10(10D) or Section 10(1), depending on the nature of the fund.
📌 Key Points:
If the benevolent fund is employer-funded and approved by the Commissioner of Income Tax:
The amount received by the legal heir is exempt.
It is treated as a capital receipt, not income.
No income tax liability arises in the hands of the nominee/legal heir.
If the fund is NOT approved or is voluntary:
It may still be considered a capital receipt and hence not taxable, provided it is in the nature of compassionate or gratuitous payment and not connected with any contractual obligation.
Relevant Interpretations:
In many judicial decisions and CBDT circulars, compensation or ex-gratia payments made to legal heirs upon death of an employee are not taxable, as they are not considered "income" under Section 2(24).
Not covered under salary or income from other sources unless it’s part of a contractual arrangement.
✅ Practical Filing Guidance
In the Income Tax Return:
Do not include such amount as taxable income.
You may disclose it under:
Schedule EI (Exempt Income) → Category: “Others”
Add remark: "Amount received from benevolent fund on death of employee – capital receipt"
🔍 Clarification from CBDT
In similar context, CBDT Circular No. 573, dated 21-08-1990, clarified that:
"Any lump sum payment made gratuitously or by way of compensation or otherwise to widow/other legal heir of an employee who dies while still in active service is not taxable as income."
This can be applied by analogy to benevolent fund payments.
✅ Legal Position & Tax Treatment
While there is no specific section in the Income Tax Act, 1961, that directly mentions "benevolent fund," the exemption generally applies under general principles and judicial precedents, and sometimes under Section 10(10D) or Section 10(1), depending on the nature of the fund.
📌 Key Points:
If the benevolent fund is employer-funded and approved by the Commissioner of Income Tax:
The amount received by the legal heir is exempt.
It is treated as a capital receipt, not income.
No income tax liability arises in the hands of the nominee/legal heir.
If the fund is NOT approved or is voluntary:
It may still be considered a capital receipt and hence not taxable, provided it is in the nature of compassionate or gratuitous payment and not connected with any contractual obligation.
Relevant Interpretations:
In many judicial decisions and CBDT circulars, compensation or ex-gratia payments made to legal heirs upon death of an employee are not taxable, as they are not considered "income" under Section 2(24).
Not covered under salary or income from other sources unless it’s part of a contractual arrangement.
✅ Practical Filing Guidance
In the Income Tax Return:
Do not include such amount as taxable income.
You may disclose it under:
Schedule EI (Exempt Income) → Category: “Others”
Add remark: "Amount received from benevolent fund on death of employee – capital receipt"
🔍 Clarification from CBDT
In similar context, CBDT Circular No. 573, dated 21-08-1990, clarified that:
"Any lump sum payment made gratuitously or by way of compensation or otherwise to widow/other legal heir of an employee who dies while still in active service is not taxable as income."
This can be applied by analogy to benevolent fund payments.
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