LUMPSUM PAYMENT OR OTHERWISE

Lumpsum Payment or otherwiseLumpsum payment or otherwise received by an employee at the time of voluntary retirement would
be taxable as “profits in lieu of salary”.

Exemption of Voluntary Retirement Receipts [Section 10(10C)]

Voluntary retirement receipt would be exempt under section 10(10C), subject to the following
conditions:

Eligible Undertakings - The employee of the following undertakings are eligible for exemption
under this clause:

(i) Public sector company

(ii) Any other company

(iii) An authority established under a Central/State or Provincial Act

(iv) A local authority

(v) A co-operative society

(vi) An University established or incorporated under a Central/State or Provincial Act and an
Institution declared to be an University by the University Grants Commission.

(vii) An Indian Institute of Technology

(viii) Such Institute of Management as the Central Government may, by notification in the Official
Gazette, specify in this behalf

(ix) Any State Government

(x) The Central Government

(xi) An institution, having importance throughout India or in any state or states, as the Central

Government may specify by notification in the Official Gazette.

Limit: The maximum limit of exemption should not exceed ` 5 lakh.

Such compensation should be at the time of his voluntary retirement or termination of his service, in
accordance with any scheme or schemes of voluntary retirement or, in the case of public sector
company, a scheme of voluntary separation. The exemption will be available even if such
compensation is received in installments.

Guidelines:

The schemes should be framed in accordance with such guidelines, as may be prescribed and
should include the criteria of economic viability.

Rule 2BA prescribes the following guidelines for the purposes of the above clause:

1. It applies to an employee who has completed 10 years of service or completed 40 years of age.
However, this requirement is not applicable in case of an employee of a public sector company
under the scheme of voluntary separation framed by the company.

2. It applies to all employees by whatever name called, including workers and executives of the
company or the authority or a co-operative society except directors of a company or a
cooperative society.

3. The scheme of voluntary retirement or separation must have been drawn to result in overall
reduction in the existing strength of the employees.

4. The vacancy caused by the voluntary retirement or separation must not be filled up.

5. The retiring employee of a company shall not be employed in another company or concern
belonging to the same management.

6. The amount receivable on account of voluntary retirement or separation of the employee must
not exceed the amount equivalent to three months’ salary for each completed year of service
or salary at the time of retirement multiplied by the balance months of service left before the
date of his retirement or superannuation.

Notes –

Where any relief has been allowed to any assessee under section 89 for any assessment year in
respect of any amount received or receivable on his voluntary retirement or termination of service
or voluntary separation, no exemption under section 10(10C) shall be allowed to him in relation to
that assessment year or any other assessment year.

Salary for this purpose means basic salary and dearness allowance, if provided in the terms of
employment for retirement benefits, forming part of salary and commission which is expressed as a
fixed percentage of turnover