I was laid off 6 months back by my company. As part of the package, they agreed to pay me 4 month of salary by keeping me on payrolls and providing me salary every month till 4 months got exhausted. The company wanted to avoid lumpsum payment and also make it look as if its not a layoff. Corporate tricks most companies follow. But the letter given at that time by the company clearly stated that i was laid off due to reduction exercise and i should vacate on the same day. The surprise factor was that they taxed these four months
1. My salary agreed for every month (retrenchment compensation)
2. My Leave encashment
3. 1/3rd Superannuation commutation
I would like to know what are the options or sections available for me to get the taxes paid by me refunded while filing the tax return. The company assumed as if i had resigned from the company instead being retrenched. The company is incompetent according to me to handle layoffs in a professional manner. They still think layoffs as a stigma in Indian context.Haven't grown up :-). But my argument is that i was retrenched thus i should have been given all the section 10 related exemptions as part of my agreed salary post layoff. Kindly suggest the exemptions i am eligible being laid off and which ITR i should use to file the same.
PS: I am a real person. i am not a robot. My email id is real. My query is real and genuine.
As per sec 10(10B) of the Income-tax Act, 1961, any retrenchment compensation received by a workman as defined in the Industrial Disputes Act is exempt from tax subject to maximum compensation of Rs5 lakh. As per the Industrial Disputes Act workman can be defined as â€œ"workman" means any person (including an apprentice employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person-
(i) who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or
(ii) who is employed in the police service or as an officer or other employee of a prison; or
(iii) who is employed mainly in a managerial or administrative capacity; or
(iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, function mainly of a managerial nature.â€
In your case assuming the compensation received is less than Rs5 lakh and you fall within the definition of workman narrated above the retrenchment compensation received by you shall be exempt from tax.
As per the provisions of sec 10(10AA), leave encashment received at the time of retirement whether on account of superannuation or resignation shall be exempt from tax subject to following conditions:
Leave encashment actually received;
10 months average salary;
Cash equivalent of unavailed leave calculated on the basis of maximum 30 days leave for every year of completed service; &
Amount specified by Government i.e INR 3,00,000.
Least of the above is allowed as a deduction.
Where leave encashment has been received in any of the earlier previous years and was not chargeable to tax shall be reduced from the deduction availed under this sec in the current year. In your case since the leave encashment is received at the time of retirement the same shall be exempt subject to above mentioned conditions.
As per sec 10(13) any amount received from approved superannuation fund is exempt from tax only in following circumstances:
Any amount received at the time of death of the beneficiary;
Any amount received by an employee in lieu of, or in commutation of an annuity on his retirement at or after the specified age or on his becoming incapable prior to such retirement; or
Refund of contribution to an employee on leaving the service (otherwise than above mentioned reason) to the extent to which such payment does not exceed the contribution made prior to April 1, 1962.
By way of refund of contributions on the death of a beneficiary.
By way of transfer to the account of employee under a pension scheme referred to in sec 80 CCD as notified by the government.
In your case since you need to check whether you satisfy the conditions laid down for the exemptions.
In any case, if your employer has not given you these exemptions, you could still claim the same while filing your tax return. Ultimately, it is the responsibility of the tax payer to file his return of income correctly by computing his income correctly. Therefore, you can make the claims in the return of income. However, practically, this will probably result in litigation and you need to be prepared for it.
Further, ITR 1 can be used file the return of income assuming the income is derived only from Salaries, one house property, other sources and total income is up to Rs50 lakh.
Ameet Patel Ameet N Patel is a chartered accountant and former President of Bombay Chartered Accountants Society - BCAS
Subodh Shah CA Subodh Shah is a Fellow Member of the ICAI. A merit ranker throughout his career, he stood 3rd in CA Intermediate and 17th in CA Final. In addition he also got the prize of ICAI for scoring the highest marks in Direct Taxes at CA Final. He is practicing Chartered Accountant as well as a teacher for over 20 years.
Ameya Kunte Ameya Kunte is a Tax Professional, Chartered Accountant & Co-founder - Taxsutra.com
Nikhil Vadia CISA qualified Nikhil Vadia is a Chartered Accountant in practice since 1997
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Yogesh Sapkale Yogesh Sapkale is Deputy Editor of Moneylife and writes on financial and tax related issues
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