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Tax refund (from salary & compensation) for employees laid-off in 2019-2020

Pran (Self) (23 Points)

06 April 2020

I got laid off in April 2019. I got salary for 1 month (April) .
While paying retrenchment compensation the company deducted about Rs. 4.5 Lakhs as TDS.
I have not found any job from 1st May 2019 to 31st March 2020.(i.e. 11 months).
Is it possible to claim any refunds/deductions from the tax already deducted at source (4.5 Lakhs) in the year from the tax already paid?

Kindly help.

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4 Replies

Mohammed (Chartered Accountant) (43 Points)
Replied 06 April 2020

Hi there,

Based on the details provided, I understand that you are in receipt of a retrenchment compensation, salary income for a month(April) during the financial year 2019-20. Also tax has been deducted at source (TDS) on the amount of retrenchment compensation.

Here it is pertinent to note that the retrenchment compensation paid by employer may be claimed exempt upto INR 500,000 under section 10(10B) or section 10(10C) of the Income-tax Act 1961 (the Act).

As per Section 192 of the Act, employer is liable to deduct tax at source after applying the appropriate rate of tax on payment of salary income to the employee.

Having said the above, it has to be ascertained whether the employer has deducted tax at the appropriate rate. Where the tax computed after applying the appropriate rate comes to be lower than the actual TDS, return of income could be filed claiming a refund of excess tax paid.

Regards

rama krishnan (12234 Points)
Replied 07 April 2020

Additional information in respect of compensation received on account of termination of employment :
w. e. f 1/4/19, under section 56(2)(xi) , compensation received on termination of employment or by whatever name called is chargeable to tax under the head income from other sources.
I have no idea about which section has overriding effect. let's wait for experts opinion

Mohammed (Chartered Accountant) (43 Points)
Replied 09 April 2020

Hi there,

Section 56(2)(xi) of the Act has been inserted w.e.f 1 April 2019 to bring within the tax ambit those receipts which have been ruled as capital receipts in the hands of the assesse.

Section 17(3)(i) of the Act specifically provides that profits-in-lieu of salary includes- "the amount of any compensation due to or received by an assessee from his employer at or in connection with the termination of his employment".

This provision is very similar to section 56(2)(xi) except that:
i. wherease Section 17(3)(i) covers 'compensation' only, Section 56(2)(xi) covers "any other payment" and
ii. Section 17(3)(i) covers payment from "employer or former employer", Section 56(2)(xi) covers payment from "any person".

It is advisable to consider retrenchment compensation as Income under the head Salary.

Regards

Pran (Self) (23 Points)
Replied 21 April 2020

Thanks a lot Sirs.

I am not versed with taxation laws , so this REALLY helps and also my question may appear too naive to you too.

I have a query, that since the entire amount (April salary + lump sum compensation) is treated as Salary, what are the heads among the below that I can claim ?-

(1) Exemption of HRA from May 2019 to March 2020. Can i submit rent recipt for the year now and claim refund?

(2) Standard deduction for the year

(3) LTA

(4) Section 80C -Tuition fees for children

Any other relief/exemption can I claim?

Also, where do we submit, such proofs for laid-off employees since the relationship with the employer ceases to exist now?( or we just keep the proofs handy to show later if required)