Major ‘Retirement Benefits’ gets by the Employee

 An employee gets various retirement benefits, viz:

 

 Retirement benefits

Illustration

Leave encashment

Mr. Kumar is working in Essem Ltd. At the time of retirement he was having 84 days’ leave standing to the credit in his account. He encashed the leave and got Rs. 2,52,000 on account of leave encashment.

Gratuity

Mr. Sunil is working in Essem Ltd. At the time of retirement from his service, apart from other payments he received Rs. 8,40,000 as gratuity.

Un-commuted pension

Mr. Krunal is working in Essem Ltd. In January, 2013, he retired from his service and received Rs. 8,400 per month as pension.

Commuted pension

Mr. Kaushal is working in Essem Ltd. In December, 2012, he retired from his service and received Rs. 18,400 per month as pension. On 30-4-2013, he decided to commute 50% of his pension. He received Rs. 8,40,000 on account of commuted pension. From May, 2013 and onwards he received the balance 50% of his monthly pension of Rs. 9,200.

Payment received on voluntary retirement/separation

Mr. Kaushik is working in Essem Ltd. In June, 2013, the company declared a voluntary retirement scheme and Mr. Kaushik opted for the scheme and received Rs. 18,40,000 as compensation on account of voluntary retirement.

Payments from provident fund

Mr. Suresh is working in Essem Ltd. In June, 2013, he retired from the job. At the time of his retirement, apart from other payments he received Rs. 2,52,000 on account of withdrawal from provident fund.

Apart from above items, retirement benefits also cover :

 Retrenchment compensation

 Payments from approved superannuation fund

 Payments from new pension scheme

 

In this advance learning we will learn about the tax treatment of various retirement benefits.

 

 Illustration

From the following information identify the nature of retirement benefit.

 

        Cash received in respect of leave not availed by the employee amounting to Rs. 84,000 (for 84 days). Receipt was during the continuation of the service.

        Cash received at the time of retirement in respect of leave not availed by the employee amounting to Rs. 25,200 (for 25 days).

        After retirement, Mr. Kumar received Rs. 8,400 per month from his employer.

        In the above case, Mr. Kumar requested his employer to pay a lumpsum amount in lieu of monthly pension and he received Rs. 84,000.

        Mr. Kumar opted for voluntarily retirement and got Rs. 8,40,000 on account of voluntarily retirement.

 

 Particulars

Nature of payment

Cash received in respect of leave not availed by the employee amounting to Rs. 84,000 (for 84 days). Receipt was during the continuation of the service.

This will amount to leave encashment during the continuation of service.

Cash received at the time of retirement in respect of leave not availed by the employee amounting to Rs. 25,200 (for 25 days).

This will amount to leave encashment at the time of retirement.

After retirement, Mr. Kumar received Rs. 8,400 per month from his employer.

This will amount to un-commuted pension.

In the above case, Mr. Kumar requested his employer to accumulate the above payments and in lieu he received Rs. 84,000.

This will amount to commuted pension.

Mr. Kumar opted for voluntarily retirement and got Rs. 8,40,000 on account of voluntarily retirement.

This will amount to payment received on account of voluntarily retirement.

 
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Retirement Benefits

1.       Major Retirement benefits gets by the Employee

2.       Tax Treatment of ‘Leave Encashment’

3.       Tax Treatment of ‘Gratuity’

4.       Tax Treatment of ‘Pension’
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