Retrenchment Benefit
This query is : Resolved
18 September 2010
What is the maximum limit of exemption for retrenchment benefit. Kindly explain clearly.
18 September 2010
Retrenchment Compensation (Sub Section [10B] of Section 10
Any compensation received by a workman under the Industrial Disputes Act, 1947 or under any other Act, or rules, orders, notifications issued thereunder or under any award, contract of service or otherwise, at the time of his retrenchment shall be exempt to the extent of:
1. an amount calculated in accordance with the provisions of Section 25F(b) of the Industrial Disputes Act, 1947; or
2. Such amount, not being less than Rs. 5,00,0007- as the Central Government may specify in this behalf.
3. The amount received whichever is the least.
However, the monetary limit as prescribed above shall not apply in cases where the compensation is received under any scheme approved by the Central Government.
Compensation in excess of the aforesaid limits is taxable as salary or profit in lieu of salary which is however eligible for relief under Section 89(1) read with I.T. Rule 21A.
Section 25F(b) of Industrial Disputes Act provides for payment of retrenchment compensation equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of six months.
For this purpose, average pay will be calculated as under:
1. if the workman is getting monthly salary, then on the basis of the salary of last three calendar months; or
2. if the workman is getting weekly wages, then on the basis of wages of last four completed weeks; or
3. the workman is getting daily wages, then on the basis of wages of last twelve full working days.
Under the Industrial Disputes Act, for this purpose salary or wages mean all remuneration capable of being expressed in terms of money, which would be payable to a workman in respect of the his employment or work done in such employment, including the value of benefits mentiioned in the Explanation to such Act.
Compensation received by a workman at the time of the closing down of the undertaken in which he is employed is treated as compensation received at the time of his retrenchment. If ownership or management of the undertaking in which the workman is employed is transferred and he takes up employment with the transferee, the consideration received by him at the time of transfer of ownership or management will also qualify for the aforesaid tax exemption if;
1. the service of the workman has been interrupted by such transfer;
2. the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer; or
3. new employer is under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service had been continuous and had not been interrupted by the transfer.
Illustration
Mr. Z is a workman working with M/s. PQR Limited. HE is retrenched from service by the management and paid a compensation of Rs. 36,0007- under the Industrial Disputes Act, 1947. The receipt of Rs. 36,0007- will be exempt from tax in the hands of Mr. Z.
Any compensation received by a workman under the Industrial Disputes Act, 1947 or under any other Act, or rules, orders, notifications issued thereunder or under any award, contract of service or otherwise, at the time of his retrenchment shall be exempt to the extent of:
1. an amount calculated in accordance with the provisions of Section 25F(b) of the Industrial Disputes Act, 1947; or
2. Such amount, not being less than Rs. 5,00,0007- as the Central Government may specify in this behalf.
3. The amount received whichever is the least.
However, the monetary limit as prescribed above shall not apply in cases where the compensation is received under any scheme approved by the Central Government.
Compensation in excess of the aforesaid limits is taxable as salary or profit in lieu of salary which is however eligible for relief under Section 89(1) read with I.T. Rule 21A.
Section 25F(b) of Industrial Disputes Act provides for payment of retrenchment compensation equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of six months.
For this purpose, average pay will be calculated as under:
1. if the workman is getting monthly salary, then on the basis of the salary of last three calendar months; or
2. if the workman is getting weekly wages, then on the basis of wages of last four completed weeks; or
3. the workman is getting daily wages, then on the basis of wages of last twelve full working days.
Under the Industrial Disputes Act, for this purpose salary or wages mean all remuneration capable of being expressed in terms of money, which would be payable to a workman in respect of the his employment or work done in such employment, including the value of benefits mentiioned in the Explanation to such Act.
Compensation received by a workman at the time of the closing down of the undertaken in which he is employed is treated as compensation received at the time of his retrenchment. If ownership or management of the undertaking in which the workman is employed is transferred and he takes up employment with the transferee, the consideration received by him at the time of transfer of ownership or management will also qualify for the aforesaid tax exemption if;
1. the service of the workman has been interrupted by such transfer;
2. the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer; or
3. new employer is under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service had been continuous and had not been interrupted by the transfer.
Illustration
Mr. Z is a workman working with M/s. PQR Limited. HE is retrenched from service by the management and paid a compensation of Rs. 36,0007- under the Industrial Disputes Act, 1947. The receipt of Rs. 36,0007- will be exempt from tax in the hands of Mr. Z.
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