Section 10(10C) Exemption of amount received on voluntary retirement

Any amount received / receivable by a specified category of an employee under the voluntary retirement scheme or under the voluntary separation scheme is exempted under section 10(10C) of the Income Tax Act. Under the present article, exemption provisions of section 10(10C) are taken up and explained meticulously.

Provisions of section 10(10C)–

Provisions of section 10(10C) exempt any compensation received at the time of voluntary retirement or voluntary separation or termination of service provided all the conditions are satisfied-

1. The compensation should have been received at the time of voluntary retirement or termination of service. However, in the case of an employee of the public sector company, the compensation should have been received at the time of voluntary separation.

2. The compensation should have been received by the specified categories of an employee (list of the same is provided under the next point).

3. The compensation should have been received in accordance with the scheme of voluntary retirement. In the case of a public sector company, the compensation should have been received in accordance with the scheme of voluntary separation.

Categories of employees eligible for exemption under section 10(10C) of the Income Tax Act–

Exemption under section 10(10C) is available towards the amount received (receivable) on voluntary retirement or termination of service by an employee of the following undertaking-

• A public sector company, or
• A local authority, or
• Any other company, or
• Any State Government, or
• The Central Government, or
• An authority (established under the Central or State or Provincial Act), or
• A University incorporated or established by / under a Central or State or Provincial Act, or
• An Institution acknowledged to be a University under section 3 of the University Grants Commission Act, or
• An Indian Institute of Technology, or
• An institution of management as notified by the Central Government, or
• An institution (having importance throughout India or in any state) as notified by the Central Government.

The maximum amount of exemption available under section 10(10C) of the Income Tax Act–

Lower of the following amount is available as a maximum exemption under section 10(10C)–

• The actual amount received under voluntary retirement / voluntary separation scheme; or
• INR 5 Lakhs.

Other noticeable point of section 10(10C) of the Income Tax Act–

• If an exemption under section 10(10C) is allowed to the employee in any assessment year, then no exemption shall be allowed to him in any other assessment year. Meaning thereby that the exemption under section 10(10C) is available only once.
• In case relief under section 89 has been allowed to the employee in respect of any amount received/ receivable on his voluntary retirement/ voluntary separation/ termination of service for any assessment year, then, the exemption under section 10(10C) shall not be allowed to him for any other assessment year.

Guidelines prescribed under rule 2BA of the Income Tax Rules-

The exemption under section 10(10C) of the Income Tax Act is available only if the voluntary retirement scheme is framed, by the company/ authority/ co-operative society/ university/ institute, satisfying the below criteria prescribed under rule 2BA-

1. The scheme applies to an employee who has either completed 10 years of service or has completed 40 years of age.

2. It should be noted that the above criterion doesn’t apply to the amount received by the employee of a public sector company under the voluntary separation scheme framed by the public sector company.

3. The scheme should apply to all the employee, which includes workers and executives of a company or a co-operative society or an authority, except directors of a company or a co-operative society.

4. The voluntary retirement / voluntary separation scheme should have been drawn to result in an overall drop in the current strength of the employees.

5. The vacancy resulted from the voluntary retirement / voluntary separation scheme is not to be filled up.

6. The voluntary retiring employee shall not be employed in another company/ concern belonging to the same management.

7. The amount receivable of the employee under the voluntary retirement / voluntary separation scheme should not exceed-

a. The amount equal to 3 months salary for each completed years of service; or

b. The amount equal to salary at the time of retirement X balance months of service left before the date of retirement/ superannuation.

Please note ‘salary’, as mentioned above, includes basic salary, dearness allowance (if forms  part of retirement benefit) and commission based on fixed percentage of turnover.

Table – Articles on Section 10 Exemptions