Income tax

The matter differs from case to case. If the loss to employee can be proved as capital loss, exemption can be claimed. The Delhi HC in CIT v. Deepak Verma (2010) 194 TAXMAN 265, held that severance payments made by an employer would not be treated as ‘profits in lieu of salary’ and hence, not taxable for AY 2001-02.

However, the Delhi HC in that case observed that the “salary” definition at that relevant time was not adequate to cover severance payments. The court specifically pointed out that the amendments vide Finance Act, 2002 with effect from April 1, 2002 will however bring within the tax net severance payments as well. The Delhi HC observed that in fact, the Legislature wanted such type of payments to be treated as income in the hands of employees/ persons and to tax them.

In fact, it was for the same reason that the said amendment was inserted in the IT Act.

Thank you, sir. "If the loss to an employee can be proved as a capital loss, the exemption can be claimed". How to prove the same?. Yes sir, by virtue of section 17(3)(i), any compensation due to or received by an assessee from his employer in connection with the termination of his employment is taxable as profit in lieu of salary.

Also, whether the exemption can be claimed under section 10(10B)? 

lower of the below

1.Actual amount received

   OR

2.Rs.5,00,000/-

""If the loss to an employee can be proved as a capital loss, the exemption can be claimed". How to prove the same?."

Depends upon terms or situation under which the employee gets termination. e.g. condition of not pursuing job for certain period, or in the same field etc. etc.

"whether the exemption can be claimed under section 10(10B)? " Yes, if it retrenchment compensation.

Very well explained

Thanks CA Madhavi Pandit.