Taxability of Severance Pay

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This discussion clarifies the tax treatment of severance pay, gratuity, and leave encashment for the financial year 2019-2020. While employers have deducted TDS, specific sections of the Income-tax Act, 1961, provide exemptions. Retrenchment compensation for workmen is exempt up to £5 lakh under Section 10(10B), leave encashment up to £3 lakh is exempt, and gratuity is exempt if paid according to the Gratuity Act.

Pooja Jogani

Pooja Jogani (Querist)
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28 December 2020 Hi,

Please let me know if gratuity,leave encashment on termination, severance pay is taxable for the FY 2019-2020.
Employer has taxed and deducted TDS.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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28 December 2020 As per sec 10(10B) of the Income-tax Act, 1961, any retrenchment compensation received by a workman as defined in the Industrial Disputes Act is exempt from tax subject to maximum compensation of Rs5 lakh.
Leave encashment up to 3 lacs is exempt. Gratuity is exempt if paid as per gratuity act provisions.