As per Section 10(10C) any compensation received upon voluntary retirement or separation is exempt from tax when the following conditions are fulfilled
- Compensation received is towards voluntary retirement or separation
- Maximum compensation received is Rs 5,00,000.
- Exemption when allowed for a assessment year, will not be allowed for any other assessment year.
- The recipient is an employee of an authority established under the central or state act, local authority, university, IIT, state government or central government, notified institute of management, or a notified institute with importance throughout India or any state, PSU, company or cooperative society.
- The receipts are in compliance with Rule 2BA
- Where relief under section 89 has been taken by an employee for compensation for voluntary retirement or separation or termination of services – no exemption shall be available under this section for the same assessment year or any other assessment year.
Rule 2BA – the scheme of voluntary retirement must fulfill these conditions-
- The recipient must have completed 10 years of service or 40 years of age (not applicable to employees of a PSU) – therefore a less than 40 years old employee of a company which is less than 10 years old will not able to satisfy this condition and therefore no exemption will be available to such an employee.
- The scheme is applied to all employees, including workers & executives of a concern excluding directors of a company or a co-operative society.
- The scheme shall result in overall reduction of the existing strength of the employees of the company.
- The vacancy caused by voluntary retirement or separation is not filled up, and the retiring employee must not be employed in another company or concern belonging to the same management.
- The amount receivable does not exceed 3 month’s salary for each completed year of service OR monthly emoluments at the time of retirement multiplied by balance months of service left before the date of his retirement.