An employer terminated his contract, for which he had to pay 3 months salary as compensation to the employer. He had till then received salary for 11 month's.
Can tax benefit be available for the compensation amount?
will 11 months salary be taxable in hands the employee or 8 months salary??
Damages claimed for breach of contract cannot be considered income and income tax cannot be levied on such receipts, the Income-tax Appellate Tribunal, Mumbai has ruled recently. The ITAT held that such income can be considered capital receipts. In a normal case, tax is not levied on capital receipts unless the case involves transfer of assets. If there is transfer of assets, the revenue received would be considered capital gains and taxed accordingly.
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