1. Introduction – On retirement, an employee normally receives certain retirement benefits. Such benefits are taxable under the head ‘Salaries’ as ‘profits in lieu of Salaries’ as provided in section 17(3). However, in respect of some of them, exemption from taxation is granted u/s 10 of the Income Tax Act, either wholly or partly. These exemptions are described below:-

2. GRATUITY (Sec. 10(10)):

(i) Any death cum retirement gratuity received by Central and State Govt. employees, Defence employees and employees in Local authority shall be exempt.

(ii) Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt subject to following limits:-

(a) For every completed year of service or part thereof, gratuity shall be exempt to the extent of fifteen days Salary based on the rate of Salary last drawn by the concerned employee.

(b) The amount of gratuity as calculated above shall not exceed Rs 20 Lakh.(Limit increased to Rs. 20 Lakh with effect from 29.03.2018, earlier limit was Rs. 10 Lakh.) notification S.O. 1420 (E) dated 29.03.2018

(iii) In case of any other employee, gratuity received shall be exempt subject to the following limits:-

(a) Exemption shall be limited to half month salary (based on last 10 months average) for each completed year of service

(b) Rs. 10 Lakhs whichever is less.

Where the gratuity was received in any one or more earlier previous years also and any exemption was allowed for the same, then the exemption to be allowed during the year gets reduced to the extent of exemption already allowed, the overall limit being Rs. 10 Lakhs.

As per Board’s letter F.No. 194/6/73-IT(A-1) dated 19.6.73, exemption in respect of gratuity is permissible even in cases of termination of employment due to resignation. The taxable portion of gratuity will quality for relief u/s 89(1).

Gratuity payment to a widow or other legal heirs of any employee who dies in active service shall be exempt from income tax(Circular No. 573 dated 21.8.90). 


(i) In case of employees of Central & State Govt. Local Authority, Defence Services and Corporation established under Central or State Acts, the entire commuted value of pension is exempt.

(ii) In case of any other employee, if the employee receives gratuity, the commuted value of 1/3 of the pension is exempt, otherwise, the commuted value of 1/2 of the pension is exempt.

Judges of S.C. & H.C. shall be entitled to exemption u/s of commuted value upto 1/2 of the pension (Circular No. 623 dated 6.1.1992).

4. LEAVE ENCASHMENT (Section 10(10AA)):

(i) Leave Encashment during service is fully taxable in all cases, relief u/s 89(1) if applicable may be claimed for the same.

(ii) Any payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt.

(iii) In case of other employees, the exemption is to be limited to the least of following: (a) Cash equivalent of unutilized earned leave (earned leave entitlement can not exceed 30 days for every year of actual service) (b) 10 months average salary (c) Leave encashment actually received. This is further subject to a limit of Rs.3,00,000 for retirements after 02.04.1998.

(iv) Leave salary paid to legal heirs of a deceased employee in respect of privilege leave standing to the credit of such employee at the time of death is not taxable.

For the purpose of Section 10(10AA), the term ‘Superannuation or otherwise’ covers resignation (CIT Vs. R.V. Shahney 159 ITR 160(Madras).


Retrenchment compensation received by a workman under the Industrial Disputes Act, 1947 or any other Act or Rules is exempt subject to following limits:-

(i) Compensation calculated @ fifteen days average pay for every completed year of continuous service or part thereof in excess of 6 months.

(ii) The above is further subject to an overall limit of Rs.5,00,000 for retrenchment on or after 1.1.1997 (Notification No. 10969 dated 25.6.99).


(i) Payment received by an employee of the following at the time of voluntary retirement, or termination of service is exempt to the extent of Rs. 5 Lakh:

(a) Public Sector Company.

(b) Any other company.

(c) Authority established under State, Central or Provincial Act.

(d) Local Authority.

(e) Co-operative Societies, Universities, IITs and Notified Institutes of Management.

(f)  Any State Government or the Central Government.

(ii) The voluntary retirement Scheme under which the payment is being made must be framed in accordance with the guidelines prescribed in Rule 2BA of Income Tax Rules. In case of a company other than a public sector company and a co-operative society, such scheme must be approved by the Chief Commissioner/Director General of Income-tax. However, such approval is not necessary from A.Y. 2001- 2002 onwards.

(iii) Where exemption has been allowed under above section for any assessment year, no exemption shall be allowed in relation to any other assessment year. Further, where any relief u/s 89 for any assessment year in respect of any amount received or receivable or voluntary retirement or termination of service has been allowed, no exemption under this clause shall be allowed for any assessment year.

7. PAYMENT FROM PROVIDENT FUND (Sec. 10(11), Sec. 10(12)):

Any payment received from a Provident Fund, (i.e. to which the Provident Fund Act, 1925 applies) is exempt. Any payment from any other provident fund notified by the Central Govt. is also exempt. The Public Provident Fund(PPF) established under the PPF Scheme, 1968 has been notified for this purpose. Besides the above, the accumulated balance due and becoming payable to an employee participating in a Recognised Provident Fund is also exempt to the extent provided in Rule 8 of Part A of the Fourth Schedule of the Income Tax Act.


Payment from an Approved Superannuation Fund will be exempt provided the payment is made in the circumstances specified in the section viz. death, retirement and incapacitation.


Section 10(15) of the Income Tax Act incorporates a number of investments, the interest from which is totally exempt from taxation. These investments may be considered as one of the options for investing various benefits received on retirement. One among them, notified u/s 10(15)(iv)(i), is the DEPOSIT SCHEME FOR RETIRED GOVT/PUBLIC SECTOR COMPANY EMPLOYEES which is a particularly attractive option for retiring employees of Govt. and Public Sector Companies. W.e.f. assessment year 1990-91, the interest on deposits made under this scheme by an employee of Central/State Govt. out of the various retirement benefits received is exempt from Income-tax. This exemption was subsequently extended to employees of Public Sector companies from assessment year 1991-92 vide notification No. 2/19/89-NS-II dated 12.12.1990. Salient features of the scheme are discussed below:

  • Rate of Return – Tax free interest @ 9% P.A. payable half yearly on 30th June and 31st December
  • Limit of Investment –   Minimum Rs. 1000. Maximum not exceeding the total retirement benefits.
  • Liquidity – Entire balance can be withdrawn after expiry of 3 years from the date of deposit. Premature encashment can be, made after one year from the date of deposit in which case interest on amount withdrawn will be payable @ 4% from the date of deposit to the date of withdrawal.
  • Other considerations: Only 1 account can be opened in own name or jointly with spouse. Account is to be opened within 3 months of receiving retirement benefits. Scheme is operated through branches of SBI and its subsidiaries and selected branches of nationalised banks.

[This scheme has been discontinued w.e.f. 10.07.2004 vide notification F. No.15-01/2004-NS-2, dated 09.07.2004.]

(Compiled by CA Sandeep Kanoi)

(Republished With Amendments)

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    After retirement as District Judge, I received some amount towards G.I.S. (GROUP INSURANCE SCEME). Whether this amount is taxable or exempted under section.10 of Income Tax Act?


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  3. Sunil says:

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  5. Roshan says:

    Sir my salary income is 14 lacs.i got received terminal benefits rs.55 Lacs all are exempted for TDS.Which form I should file,ITR 1 or Total amount exceed 50 Lacs .I have no other income.

  6. goyalm says:

    I retired on 31/08/2019.My employer has not shown all the retirement dues in my form 16 and also not being shown in 26AS , as there are benefits which are exempted under section 10(10) like gratuity,leave encashment,commutation of pension and my accumulated pf and vpf etc.
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  7. Jyotsna says:

    I am a retired employee. My commutation amount was held because of extension opted by me for stay in staff quarters I have vacated the same in March . because of COVID not received the payment till date. Can I claim interest for the months company has my money as I am loosing interest for the said amt

  8. g gururaj says:

    one of our official is expired after applying vrs, within due date of the scheme and our corp office has accepted retirement under vrs scheme, and approved for terminal benefits, like gratuity,ex- gratia , service award amounts payable to nominee. kindly inform me whether we have to deduct tds on gratuity, ex-gratia and service award

  9. SHIVADAS Shankhpal says:

    Myself retired from Maharashtra govt. On. 31st May 2019.i have received GPF amt. GIS Amt. Leave encasement. But yet not received monthly pension I. e.pending In treasury office also graduaty not received. In this stage which form is suitable to file Return Of current financial year 2019-20



  11. Divakar says:

    Retired from an aided college at Mumbai. The commuted pension works out to 35 lacs. The full pension amount per month is 100350/-, out of which Rs.61410/- will be the balance pension after commutation.
    PF is with GENERAL PROVIDENT FUND, only employee contribution.
    Gratuity will be the max i.e. 20 lacs.
    Kindly guide me how much of the above commuted pension will be taxable.

  12. PIYUSH AGRAWAL says:

    One of my clients is widow her husband was working in naval dockyard during the duty her husband expired and now she is receiving pension per month so whether it is taxable or not and while filing the income tax returns which ITR to be select

  13. RAVI says:

    SAF fund payment post retirement has two components (a) lump sum payment of certain amount and (b) monthly payment
    Its not clear if Sec 10(13) allows monthly payment received as tax free.
    Can you provide clarification?

  14. gorbalu says:

    I had retained in jan -2018 at the time amt of Rs.78730/-for group Insurance Please give me guidline of Section Under exemption

  15. virender says:

    after 6 yers of service my firmtook decion to give vrs to 50% emplyees. they gave me early bird incentives rs435000.vrs lump sum rs 493504 incentives rs400000 addional benefits 128168 medical cashout 105666my gross income including salary comes to 88903 and deducted tax on1703625 comes to332626 kindly guide.

  16. vinod kumar says:

    i am working asagent of new india assurace company and have office and staff durind ay 2017-18i ireceived commission under 194h and 194d as 1816606.in my return i filled thid turn over in 44ad and shown profit more than 8% clause.now income tax authoritises considered my turn over asincome from other sorces and demanded tax on all my commition amout and adjusted tds of rs 156500 agaist the demandDuring ay year 18-19 refund of 90700 was relesed on the same pattern ,the same compay deducted tds u/S 194h and 194d and department released the refund ,PRIOR TO THID I AM GETTING REFUND FROM THE LAST 7 REARS BY SHOWING TURN OVER UNDER 44aD WHAT I DO AT THIS STAGE,PL GUIDE

  17. vinod kumar says:

    after 6 yers of service my firmtook decion to give vrs to 50% emplyees. they gave me early bird incentives rs435000.vrs lump sum rs 370128 incentives rs400000 addional benefits 139553 medical cashout 105666my gross income including salary comes to 1797517 and deducted tax on1703625 comes to332626 kindly guide.

  18. Sunny Varghese says:

    I am working working with Central PSU (Miniratna II) from 1982 under EPFO scheme of 1995. My retirement date on 31st May 2019 & need an amount of Rs.8 lakhs for purchase of Home in native place other than the working place. Iam already took Supernnuation loan of Rs.7 lakhs during last year, the balance available Rs.13 lakhs approx. including Employer/Employee share. Now 2-3 months salary will get from employer, can I get 2nd time supernnuation loan from my EPFO fund. Thanks

  19. M V S MURTHY says:

    On completion of 26 years of service as on 02.07.2019, I would like take VRS. Please know me, what are the taxable amounts in the following:
    2.Commutation amount
    3.EL encashment amount.

  20. ASHOK VISPUTE says:

    A person got VRS in the age of 56 years and he claimed his 1/3rd commuted amount of superannuation fund after the retirement age i.e 58 or 60. Whether in this condition he is liable for Tax.

  21. Anil R Khadye says:

    I took VRS in Oct 2017. Now my PF is kept with the bank PF trust. The bank gave us option to keep it for maximum period of 3 years at the trustees rate of interest. After 3 years they said that we will not get any interest on the said PF and we have to withdraw it.

    My question is whether the interest we are going to get after retirement is taxable or not.


  22. p krishnamurthy says:

    can i join in your firm ,i will retire from psu in the month of dec2018.i will be settled at hyderabad.do you have any branch at hyderabad.

  23. R.Gopalakrishnan says:

    is tamil nadu agricultural university coming under state government for exemption of Earned leave encashment at the time of retirement. urgent please repy

  24. SANDIP GARAI says:

    My father retired from PSU(SAIL) on Aug2018 and he got:
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    2. PF
    3. Gratuity
    4. LIC maturity
    5. Post office
    6. Savings Interest
    Now please guide me which amount will exempt from Income Tax and how much amount.
    how fill it in IT site. An early reply will highly expected.
    Thanks and regards

  25. Devaraj says:

    One teacher is already getting family pension as her was also a govt.teacher who died 3 years ago.Now she is also retired in May 2018.Now she has to file her tax return.whether it is necessary to add her family pension with her pension as salary ?

  26. B Ramachandran says:

    1.Receiving pension Rs 25000 per month is it taxable?
    2Receiving dividend income Rs 17000 is Ito be included as income? Whether any exemption amount is available.
    Early reply is solicited to file return

    Senior citizen 63 yrs

  27. Devendra Thakur says:

    My date of Birth is 02/01/1959 and will retire on 31st January 2019 ,salary received in F Y 2018 -2019 will be treated as Senior Citizen Or Normal Rate Will Be applicable for Income Tax Purpose,Up to how much amount Leave Encasement is Taxable,Please Reply

  28. Prashant Kumar says:

    I have taken voluntary retirement from the central government service after completed more than 23 years of service and I have received the following amount on retirement. Pl clarify out of all received amount are taxable :-

    GPF – 18 lacs
    Gratuity – 6.50 lacs
    Commuted pension – 11.72 lacs
    Leave encasement – 5.31acs
    CGGIS – 25 thousand

  29. anil dhall says:

    please i want to know i am retired from my job on
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    & my employer deduct tds around 75 lacs. my company have own trust i think it approverd from
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  30. S S Gangopadhyay says:

    Dear Sir,
    I have retired in January 2017 and have got good amount against PF & Gratuity payment. Shall remain grateful if you could kindly let me know how to show it IT form and get exemption.
    S S Gangopadhyay

  31. Inderjeet says:



  32. Mainoddin says:

    Sir myself an employee of bank retired last month
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  33. Ibrahim says:

    Sir, I am going to retire from Cochin University (a state University) on 30th of November 2017 and I will get pensionary benefits as per Kerala Government Rules to the tune of Rs.14 lakhs towards DCRG, Rs. 20 lakhs towards pension commutation and around Rs.10 lakhs towards Leave encashment (for 300 days). Please clarify whether these income are taxable. Is there exist any dispute on this? Also please clarify whether I need to report the exempted income in the IT return.

  34. Prakash says:

    Dear sir,

    i want to withdraw my Superannuation so tell me what is the procedure?

    if i withdraw is it taxable ? if YES how much rate of interest? pls

  35. SUBRAMANIAM says:

    Dear Sir , I retired from TCIL on superannuation as there was a scheme that aby employee who has served for 20 years can retire. I was deducted Rs. 98000 as Tax . Thomas cook being private company tax was paid to bank at Mumbai directly by my employer. Is it possible to claim my tax money paid now . My retirement was in 2001 / 02 .( now i am 66 yrs )
    Please mail me on my e-mail . [email protected]. Thank you sir .

  36. Gajendra singh says:

    Respected sir.myself retired from state government servis on 31/12/2015 and recivedLeave encashment and government group insurense directly deposited in my Bank Account in F.Y.2016-17. it will be Exemted

  37. Ponnuchamy T says:

    sir, our company used to pay Rs.10000/- to the employee who is retiring from the service other than salary, pf, gratuity by cheque, please advice us that this Rs.10000/- Retirement Gift given by management is taxable or not.
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  38. sanjay patki says:

    Dear Sir I am Sanjay Ptaki I am taken Early ( 1 year) retirement from Philips India Ltd Vadodara
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    Sanjay Patki
    [email protected]

  39. Lal Mohan Patnaik says:

    Sir, I am going to retire in june,2018. I may get a terminal benefit of around 50 to 60 lakhs. Besides, I am also going to get pension around Rs.30000/- per month. I want to invest all my terminal benefits in some tax free investments to get regular income like deposit scheme for retired Govt./PS company employees under Sec. 10(15)(IV)(I). Kindly advise me, whether the above scheme is discontinued? If so, is there any other scheme like that for investment without much to worry about tax.

  40. Pankaj says:

    Dear Sir,
    In September 2013, I had joined a big group of companies in India, at that time I had opted for the monthly cutting to be in favour of Superannuation, so accordingly my company had started cutting some amount per month towards Superannuation. Later in Sept 2015, I was transferred within group but in different company. At that time, I opted for the amount to get in hand but my company refused to do so. My question is can I somehow stop the monthly contribution towards Superannuation and get the same in hand per month?

  41. Sekhar says:

    I was working in a company for over 20 yrs and the benefit of approved superannuation scheme with LIC was in place. After over 20 yrs of service
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  42. APS says:

    sir, i have commuted the pension and the recovery of rs.5600/- made from pension every month. can i show this as tax exempted since the whole amount of commutation is tax exempt?

  43. Sanjib says:

    As Per My Knowledge,
    Employees Who Are In AP State Will Be Paid Service Compensation If Their Service Is More Than 1 Year But Less Than 4 Years And 10 Months.
    Employees Whose Service Is More Than 4 Years 10 Months, Gratuity Act Is Enabled And Not Service Compensation.

    Now my query : Is amount received as Service Compensation on separation/retirement taxable fully like income from Salary?
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    Moreover is there any relief u/s 89 for Service compensation like Gratuity?

  44. Nurshing charan patnaik says:

    It may please be clarified if a Government servant dies at 7 PM on the date of his retirement, can his death be treated as death while in service?

  45. Girish Singhani says:

    Do I have to reflect the amount received on retirement on account of gratuity, commutation of pension, leave encashmentand and CGEIS payments from central government in the ITR. How to get the exemption for amount so received.
    Please guide

  46. N Subrahmanyeswara Rao says:

    I am a bank official & going to retire in this month. I Wii receive leave encashment of Rs.6.40 lakh and commutation of Rs.10.87 lakhs. Please advice the IT payable by me.

  47. Bhagwat says:

    I am woring in Local Govt.Punjab . I retired on 31.5.2015. I received Rs.441750/- as Leave in cashment. what the full amount exempted from I.Tax ? or only 3,00,000/- Lac is exempted?

  48. Rakesh says:

    Sir, Please inform on taxation of contribution to superannuation fund by employer, in the hand of employee, during contribution stage and on retirement. What is the regulatory section of Income Tax Act.

  49. S.K.Pattnayak says:

    Sir, Please inform me about the CGEIGS (70% in savings fund) received at the time of retirement is taxable or not. Thanks.

  50. ac pancholi says:

    After retirement PF can be kept with RPFC for maximum 3 years and then after interest is not paid on corpus by RPFC. My question is whether interest earned during these 3 years is taxabe?

  51. Ajay Sehgal says:

    dear sir
    Pl gell r retirement benefits such as Gratuity, Leave encashment, GSLI n provident fund taxable or not Early reply expected

  52. Ajay Sehgal says:

    Please let me know that benefits received on retirement viz leave encashment, gratutity and amount deducted on account of group saving life insurance and provident fund are taxable or not I retired fro HPState Coop Agri & Rural Dev Bank Ltd

  53. vinod says:


    I am a public ltd. company official. I have completed 20 year of service and still doing the service. I have withdrawal my superannuation fund which is managed by my company’s trust. They have deducted the Tax at source. Should I have to deposit additional income tax to income tax department as per my income slab or it is exempted under any act.

    kindly advise.

  54. P.prasad says:

    I was retired from nationalised bank under superannuation on 30-6-2014, received Rs.554348/- as leave encashment. The total amount received is fully exempted under I.T. Pl inform/advise .

    Thank you

  55. M.S. Mharolkar says:

    Dear sir
    I am retired person from a public ltd co. Finally I received rs 54000 EL encashment adjusted in society loan payable. Gratuity Rs 338500 and PF Rs 276185. how do I show this in the e filing of return. as such my earning from salary for this year is less than 9 month salary Gross Mly salary is 33850. Do I need to pay any tax in advance. NO TDS was deducted at source.

    Please advise.

    With regards
    M.S. Mharolkar

  56. Shaik Madeena says:

    I have commuted the pension earlier At present I am receiving the reduced pension monthly after deduction of commuted value of the pension. Now I want to know whether the basic monthly pension is to be taken for calculation of Income tax or the reduced pension (i.e. the pension actually drawn) for this current assessment year.

  57. KANOJI C B says:

    I am a retired employee of a Nationalized bank since 4 years. The commuted pension value of Rs.5100 is deducted from my monthly pension. Kindly advise me whether the Gross Pension shall include or Exclude this commutation amount of Rs.5100.

  58. KANOJI C B says:

    I am a retired Nationalized Bank staff since 4 years. An amount of commutation of Rs.5100.00 is deducted every month from my pension. Please advise me whether the Gross Income shall be arrived after deducting the commutation of Rs.5100 or otherwise.

  59. Anurag says:

    I have submitted the technical resignation to my previous organization( State Govt.) and joined a new organization under central govt. I have taken Rs 4.40 lakhs towards leave encashment from my previous organization. Whether amount received against Leave encashment is tax free under sec 10 (10AA) of Income Tax act or it will be added to my taxable income for FY 2014-15.Pl. advice along with relevent section or citation if any.

  60. PIYARA LAL says:

    I retired from bank in the month of April and received leave encasement of Rs 603000/= Kindly advise me if this is totally exempted from income tax or have I to pay tax and at what rate

    piyara lal

  61. rupesh khanvilkar says:

    Hi ,

    My dad has retired from government service . he has received provident fund , group insurance ,

    gratuity and he is getting pension 

    the retirement benefit amount is directly deposited into his bank account but we are worried for the next financial year because he has not received any documents with regards to retrement benefits 

    would he be taxable

  62. PG Krishnaiah says:

    Deposits are made out of my retirement benefits. What is the status of deposits in the name of my spouse. Do they come under gift etc or only the interest income is taxable.

  63. T.P.D'Souza says:

    With a new Central Govt.,can retirees of Public Sector Undertakings now hope that date of implementation of 6th.pay commission,Tax benefit of Gratuity enhancement to 10 Lakhs,Tax benefit of Leave Encashment to 10 Lakhs,at par with Central Govt.employees be implemented,
    at the earliest.The Government should know that these poor souls do not have the benefit of pension,leave alone D.A. linked pension.

  64. kuldip chand says:

    My retrecment amount is Rs.282734.00 for nine year service and my mnthly salary is Rs.63,592.00. Please advise do I have to pay tax on this. As CA said since you are not falling under Workman catagory its taxable. My office in Gurgaon and registered Under shop and Establishment Act.

  65. thiagarajan says:

    Contribution by employer to superannuation fund is it taxable in the hands of the employee. If so wha are the guideliness and exemptions. Clarify from the assessment year 2006-2007 to 2012-2013

  66. T.P.D'Souza says:

    What about retirees of Public Sector Companies,wholly owned by Government Of India,whose pay and perquisites are fixed by 6th.Pay Commission.Is leave encashment limit 10 Lakhs,like Govt.employees ?

  67. w. shital says:

    Whether Employees of PSU/Nationalised Banks to be treated at par with Central Govt. Employees for exemption of leave encashment at the time of retirement needs clarification.

  68. baskar says:


    if it is during service, it would be fully taxable.

    if it is at the time of retirement,and if u r not a Government servant, least of following:

    a) Cash equivalent of unutilized earned leave (earned leave entitlement can not exceed 30 days for every year of actual service)

    b) 10 months average salary

    c) Leave encashment actually received upto Rs.3,00,000.

  69. R K JAIN says:

    Whether Public Sector Company (Wholly owned by GOI) employees are considered at par with Central Govt. employees as far as Leave Encashment is concerned????

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