DIRECT TAXES- INCOME

TAX
Tax Treatment of Retirement Benefits
 Various Kinds of Retirement Benefits

1. Gratuity
2. Pension
3. Leave Encashment/ Leave Salary.
4. Provident Fund.
5. Annuity.
 Gratuirty
1. Payment of Gratuity Act, 1972.

Section 4 . Payment of Gratuity Act, 1972.

 Gratuity a Statutory Right.

 Non payment of Gratuity.

 Length of Service should be not less than five

years.
 Exception: Death or Disability.
 Tax Treatment of Gratuity
1. Government Employee – Fully Exempt.
Section 10 (10) (i) of the Income Tax Act, 1961.
 Gratuity
Non Government employee.
 2. Non Government employee Covered under
the Payment of Gratuity Act, 1972- Fully or
partly exempt. Section 10 (10) (ii) of the Income
Tax Act, 1961.
 Least of the Following is Exempt:

a.15 days salary x length of Service.

b. Rs. 20,00,000/-
c. Gratuity actually received.
 Gratuity
Non Government employee
3. Non Government employee Not Covered
under the Payment of Gratuity Act, 1972- Fully or
partly exempt. Section 10 (10) (iii) of the Income
Tax Act, 1961.

 Least of the Following is Exempt:

a. Half months salary for each completed year of
Service .
b. Rs. 10,00,000/-
c. Gratuity actually received.
 Caselaw.
 Ram Kanwar Rana
vs
ITO (2016) 71 Taxxmann.com (Delhi-Trib)

A Teacher of an University estbalised under the

Act of State or Parliament is Government
Employee.
 Gratuity Received after Death.
 Gratuity Due, Sanctioned and paid during Life
time- Taxable/ Can Claim Exempetion.

 Gratuity Due During Lifetime however paid

and sanctioned after death- Taxable/ Can
Claim Exempetion.
 Gratuity Due, Sanctioned and paid after
death- Not Taxable.
 Pension Received From UNO

 Section 2 of the U.N. Privileges and Immunities

Act, 1974.

 Fully Exempt.
 CBDT Circular No. 293 dated 10.02.1981.
 Uncommuted Pension

 Uncommuted pension to all government and

non government employees is Fully Taxable.
 Commuted Pension
 A. Entire amount of commuted pension of
Government Employee- Central Government,
State Government, Local Authority, Statutory
Corporation is fully exempt.

 Pension
 Pension to Gallantry Award Winner

Section 10 (18) of the Income Tax Act, 1961- Fully

Exempt.

Veer Chakra, Param Veer Chakra, Mahavir Chakra

or any other notified Gallantry Award Winner.


 Family Pension Family Members of
Armed Forces

 Section 10 (19) of the Income Tax Act, 1961-

Fully Exempt.
 A.Y. 2005-2006.
 Death of Such member must have occurred in
opeartional duties.
 Disability Pension members of Armed
forces.
 Circular No. 13 of 2019 dated 24.06.2019 issued
by the CBDT.
 Irrespective of Rank
 Disabilty must be attributable to service.
 Entire Disability Pension received is Exempt.
 Uncommuted Pension
 Fully Taxable to Both Government and Non
Government Employee.
 Commuted Pension
 Govt Employee:
 Entire amount of Commuted Pension of
Government Employee is fully exempt. Section
10(10A)(i) of the Act,1961. Irrespective of
payment of gratuity.


Pension of Non Government Employee:

A. When Gratuity Received: One third of normal

pension. Section 10(10A)(ii) of the Act,1961.

B. When Gratuity Not Received: One Half of the

Normal Pension. Section 10(10A)(ii) of the
Act,1961.
 Annuity
 Payment of Annual sum for life.

 Annuity payable is taxable as Salary.

 Annuity received from insurance policy is

taxable as income from other sources.