Income Under Head Salary

Retirement Benefits
 Retirement benefits

Pension

Monthly
Commuted Uncommuted
Taxable for All

Govt. Employee
Non Govt
Fully Exempt

Also getting Gratuity Not getting Gratuity

Exempt: 1/3rd of full pension Exempt: 1/2 of full pension
Mr X retires on 1.10.2023 is receiving Rs 5000 PM as pension. On 1.2.2024, He
commuted 60% of his pension and received Rs. 300000 as Commuted Pension. You are
required to compute his taxable pension assuming:
1. He is a Government Employee
2. He is Private employee and received gratuity of Rs 500000 on retirement
3. He is Private employee and did not received gratuity on retirement.

Ans:
4. He is a Government employee
Uncommuted Pension (October 23- March 24) 24000
(5000*4+5000*40%*2)
Commuted Pension 300000
Less: Exempt 300000 0
Total Taxable Pension 24000

2. He is Private employee and received gratuity of Rs 500000 on retirement

Uncommuted Pension (October 23- March 24) 24000
(5000*4+5000*40%*2)
Commuted Pension 300000
Exempt: 1/3*300000/60% 166667 133333
Total Taxable Pension 157333
3. He is Private employee and did not received gratuity on retirement.

Uncommuted Pension (October 23- March 24) 24000

(5000*4+5000*40%*2)
Commuted Pension 300000
Exempt: 1/2*300000/60% 250000 50000
Total Taxable Pension 74000

Note:
Pension Exempt to
1. CG and SG employees
2. Individual awarded “Param Vir Chakra”/Veer Chakra or other notified Gallantry award

Family Pension to Such Employees family members is also exempt.

 Gratuity
Section 10(10)
Employees covered by Gratuity Payment Act Employees not covered *by Gratuity Payment
1972 Act 1972
Exemption – Least of the following Exemption – Least of the following
Amount actually received Amount actually received
Service year* salary * 15 days/26 days Service year*salary * 15 days/30 days
Max Rs. 20,00,000 Max Rs. 20,00,000

Note : Note :
1. Salary=Last drawn basic + DA(any type) 1. Salary=Avg of ( basic salary + DA(in terms)
2. Service year means excess of 6 months +commission on fixed %age on turnover) of
service means a complete year. preceding 10 months to the month of
retirement.
2. Service year means a complete year.

Gratuity received during Job is Fully taxable.

Gratuity after retirement to Government Employee is fully Exempt
Rs 20 Lac is total amount of exemption to a assessee during his lifetime
*Employee not covered are Employees getting gratuity on being incapacitated before
retirement or gratuity received by family member on death.
Mr Y retired on 15.6.2023 after completion of 26 years 8 months of service and received gratuity
of Rs. 15 Lac. At the retirement, his salary was :
Basic Salary: Rs 50000 PM
DA : Rs. 10000 PM (60% is part of retirement benefit)
Commission : 1% of Turnover (Turnover of last 10 Months is Rs 100 Lac)
Bonus : Rs 25000 PA

Compute taxable Gratuity assuming:

a. He is a privet sector employee and covered under payment of gratuity act
b. He is a privet sector employee and not covered under payment of gratuity act
c. He is a Govt employee.

Solution:
d. He is covered by the payment of gratuity act
Gratuity Received 1500000
Exempt: Least of following
1. Actual gratuity received 1500000
2. Max Limit 2000000
3. 15/26*27 yrs* (50000+10000) 934615 934615

Taxable Gratuity 565385

b. He is not covered by the payment of gratuity act
Gratuity Received 1500000
Exempt: Least of following 858000
1. Actual gratuity received 1500000
2. Max Limit 2000000
3. 15/30*26 yrs* 66000 858000

Taxable Gratuity 642000

Average Salary= [50000*10+10000*60%*10+10000000*1%]/10= 66000

c. He is a Govt employee

Gratuity Received 1500000

Exempt: 1500000
Taxable Gratuity 0
 Salary=Basic +DA(in terms)+Commision on T/O
LEAVE ENCASHMENT
Sec10(10AA)

During the service After retirement

Fully Taxable

Govt. Employee
Fully Exempt Non Govt Employee
Least of the following- Exempt
*Steps: a. Actual received
1. Leave actually allowed or 30 per year whichever is b. Max Limit 300000
less.(Consider only completed years) c. 10 month's avg salary*10
2. Leaves actually availed during service.
d. See steps*
3. Step(1-2) X 10 Months Avg salary/30 Days
Note: 10 Months preceding to the date of retirement
Mr Gupta Retired on 1/12/2023 after 20 years 10 months of job and received Leave encashment of Rs 500000. other
details of his salary is:
Basic Salary: Rs 5000 PM(Rs 1000 was increased w.e.f. 1/4/2023)
DA : Rs 3000 PM (60% of which is for retirement benefit)
Commission : Rs 500 PM
 Provident Fund (PF) Sec 10(11) & Sec 10(12)
Particulars Statutory Recognised Unrecognised PF Public PF
PF (SPF) PF (RPF) (URPF) (PPF)
Employer’s Exempt In excess of Neither exempt nor Not
contribution 12% of salary taxable Applicable
(During Job) is taxable as
salary
Employee’s Deduction Deduction u/s No deduction u/s 80C Deduction
contribution u/s 80C 80C u/s 80C
(During Job)
Interest credited Exempt u/s In excess of Not taxable Yearly Exempt u/s
(During Job) 10(11) 9.5% pa is 10(11)
taxable
Repayment of Exempt u/s *Fully Employer’s contribution Exempt u/s
lump sum 10(11) exempt & interest on such 10(11)
amount on contribution are fully
maturity / taxed as salary. Interest
resignation / on own contribution is
termination, etc. taxed as IOS.
(After Job)
 Provident Fund (PF)
*The accumulated balance due and becoming payable to an employee participating
in a RPF shall be exempt in the following cases:

1. For an employee who has rendered continuous service with his employer for a
period of 5 years or more
2. In the case of an employee whose service has been terminated by reason of the
employee’s ill-health or by the contraction or discontinuance of the employer’s
business or other cause beyond the control of the employee
3. In the case of an employee who obtains employment with any other employer
who maintains any RPF to which the accumulated balance becoming due &
payable is transferred or Total balance of RPF on that date is transferred to
notified NPS account. Where the accumulated balance due & becoming
payable includes an amount so transferred, the period of service under the
former employer shall be included in calculating the period of continuous
service.

Salary = Basic + D.A. if provided in terms of employment + Commission as a

percentage of turnover achieved by the employee
Assignment
Exemption under Section 10 (12A) on the amount
received from NPS If an individual invests in a National
Pension System Trust or any other pension scheme as
mentioned under Section 80CCD and then closes the scheme,
the money received from the scheme would be exempted from
tax. The exemption would be allowed for up to 40% of the
money received. However, from 1st April 2020, the limit has
been increased to 60%.

Exemption under Section 10 (12B) on partial withdrawals from NPS If an

individual invests in the National Pension System (NPS) and makes a partial
withdrawal from the scheme, the money withdrawn would be exempted from
tax. The exemption would be available for up to 25% of the balance withdrawn
from the NPS account. Moreover, the withdrawal should be done as per the
terms specified by the Pension Fund Regulatory and Development Authority
Act, 2013 and any other regulation made in the Act.