Income tax rules on exemption in respect of retirement benefits

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I have taken voluntary retirement after 16 years of service. My company has paid me an amount of 12 lakhs as compensation and 7 lakhs for leave encashed, pf and gratuity. What are the tax implications and how can I save tax on it?

Any money received under voluntary retirement scheme drawn up in accordance with prescribed rules is exempt upto a maximum limit of Rs. 5 lakhs under Section 10(10C). So out of Rs. 12 lakhs received by you Rs. 7 lakhs will be taxable in your hands in case it is framed as per the rules.

There is an exemption of Rs. 3 lakhs for leave encashment subject however to a maximum of leave equal to ten months. Please note that this exemption is available in respect of leave encashment received by a person from one or more employers during his entire lifetime. So in case you have already availed any exemption for leave encashment in the past, the eligible amount of leave encashment for exemption will come down to that extent. Likewise there is an exemption of upto Rs. 20 lakhs for gratuity received from one or more employer by a person. Since you have not provided the individual break-up, it is not possible for me to indicate the individual exemption available to you. The amount of Provident Fund balance is fully tax free in your hands.

As far as options to save tax are concerned, you have limited options. In case you have not fully utilizing the deduction under Section 80 C upto the maximum of Rs. 1.50 lakh you can invest upto Rs. 1.50 lakh either in senior citizen saving scheme or you can put the money in tax saving bank FD to the extent the same is not utilized. You can also claim tax benefits under Section 80 D in respect of medical insurance premium upto Rs. 25,000/- for your family in case you do not have any health insurance policy. You can also avail additional deduction up to Rs. 50,000/- for health insurance of your parents if they have completed 60 years of age. You can also claim an exclusive deduction of Rs. 50,000/- in respect of contribution to NPS account under Section 80 CCD(1B).

Balwant Jain is a tax and investment expert and can be reached on and @jainbalwant on Twitter

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