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Retrenchment compensation Received

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Rajat jain

student

157 Points Posted on 27 July 2023

hello I have lay off from job after 3 month of joining and the company paid me retrenchment compensation.
so can we claim exemption under retrenchment compensation any, if yes please elaborateand share your view

thank u

Replies (2)

Quick Summary

If you've received retrenchment compensation after a short period of employment (less than a year), it's likely taxable. Generally, exemptions under Section 10(10B) of the Income Tax Act require at least one year of continuous service to apply the Industrial Disputes Act formula. As your service was only three months, the compensation is typically treated as salary in lieu of profits and is taxable. While rare, exemptions might apply if paid under a government-approved scheme, and Section 89 relief could potentially reduce your tax burden.

Nikita Agarwal

Semi Qualified CA

2822 Points Posted on 27 July 2023

Whether company paid u retrenchment compensation or notice period salary??
if u received notice period salary then it is taxable otherwise u can claim exemption only if u worked in the company for a period of 240 days or more in 12 months but in your case it is 3 months ie 90 days only therefore u cannot claim.

Also u can checkout this article for detailed information
https://www.godigit.com/business-insurance/business-terms/retrenchment-compensation

Aashok Kumar Sharma

Finance/Compliance Consultant

73958 Points Posted on 07 November 2026

Exemption depends on the ID Act formula:

• Sec 10(10B) exempts retrenchment compensation up to the lowest of: the amount computed under Sec 25F(b) of the Industrial Disputes Act (15 days' average pay for every completed year of service, or part over 6 months), Rs 5 lakh, or the actual amount.

• After only 3 months of service, the ID Act formula gives nil (Sec 25F applies to workmen with at least 1 year of continuous service, and the formula is per completed year). So the exemption is nil. The whole compensation is taxable as salary (Sec 17(3), profits in lieu of salary).

• If paid under an approved scheme of retrenchment (government-approved), the full amount may be exempt (proviso to 10(10B)). That's rare.

• Sec 89 relief (Form 10E) for compensation on termination may reduce tax.