Incomes which are partially exempted from Income Tax
There are following incomes which are partially exempted from Income Tax-
Under section 10 (10), If employees get Gratuity at the time of Resignation, Retirement, or Superannuation-
- Gratuity Received by Govt. Employees - Section 10 (10) (i), grants exemption for gratuity received by govt. employees is fully exempt.
- Gratuity Received by Non Govt. Employees covered under payment of Gratuity Act 1972 –Section 10 (10) (ii), grants exemption for gratuity received, in case of employee covered under payment of Gratuity Act, least of the following-
- Last drawn salary * 15/26 * No. of completed years of service.
- B).
20,00,000 In Budget 2019, The Gratuity limit has increased to Rs. 30 lakh w.e.f 01.04.2019.
- C). Actual Gratuity received.
In case of Death of Employee, Gratuity received by his wife or his legal heirs are fully exempt in their hands.
Under Section 10 (10A), an employee who is eligible for pension decides at the time of retirement to receive a lump sum amount.
- For Govt. Employees- Commuted pension received by Govt. employee or employee of local authorities or statutory corporations is fully exempt.
- For Non Govt. Employees-
- If they receive Gratuity along with Commuted Pension, get a tax exemption of up to 1/3rd of the total amount of pension.
- If they do not receive Gratuity, the taxable exemption amount from is 1/2 of the total commuted pension received.
Under section 10 (10AA), at the time of retirement or superannuation or resignation-
- For Govt. Employees- Leave encashment at the time of retirement or superannuation or otherwise received by a Govt. employee, is fully exempt. No tax would be levied on that amount.
- For other Employees- Leave encashment at the time of retirement or superannuation or otherwise received by any other employee, is exempt to the extent of certain limit. Least of the following is exempt from tax-
- 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.
- Rs. 3,00,000.
Leave encashment received by his family members after the death of employee is not taxable in the hands of family members.
* Retrenchment compensation paid to workmen-
As per section 10(10B), compensation received at the time of retrenchment is exempt from tax to the extent of lower of the following:
- An amount calculated in accordance with the provisions of section 25F(b) of the Industrial Dispute Act, 1947; or
- Maximum amount specified by the Central Government (Rs. 5,00,000);
- Actual amount received.
* Superannuation Fund-
Under Section 10 (13), a pension fund created by company for his employee’s benefit paid after retirement or withdrawal with approval of commissioner of income tax.
- Exempted up to 1, 50,000 and entire accumulated interest is also exempt.
Under section 10(13A), HRA exemption is allowed if Salaried individuals getting House Rent Allowance as part of salary and full fill below two conditions:
- He/she has taken a residential accommodation in which he resides on rent.
- He/she has not occupied such property in which he resides.
HRA Exemption can be claimed whichever is lower on the following basis:-
- Actual HRA Received
- Rent paid minus 10% of Salary
- 40% of salary if he resides in Non-Metro City or 50% of salary if resides in Metro City.
* Entertainment Allowance-
Entertainment allowance is first included in gross salary and then deducted. In the case of government employees, least of the following is exempt:
- Rs 5,000; or
- 20% of salary; or
- Amount of Entertainment allowance actually received.
* Other Allowances-