Income Tax exemption, relief options for employees getting severance pay

Mass lay-offs are being witnessed this year, and thousands of employees have been laid off. Recently, 200 Twitter employees from India were let go after Elon Musk took over the platform. Big corporations such as Google, Meta, and Amazon have also joined the list of companies who have reduced their workforce. When a company lays off its employee before the end of the contractual period, it usually provides him/her severance pay as compensation. This helps employees in living through the period before they get another job. The severance pay offered to laid off employees is not tax-free. But, one is able to claim tax exemptions/relief with the help of several options. Have a look at some of the options available to such employees for claiming tax exemptions/reliefs under the Income Tax rule: Relief under Section 89 of the IT Act: Under Section 89 of the IT Act read with Rule 21A of the Income Tax Rules, 1962, the employees are able to claim relief with respect to salary earned in arrears. But for availing relief under this section, the employee is required to have offered continuous service for at least three years. Moreover, the unexpired portion of the employment term of such workers has to be below three years. Retrenchment Exemption under Section 10(10B): As per the Dr Suresh Surana, Founder of RSM India, employees who are getting compensation under the Industrial Dispute Act, 1947 during retrenchment, can claim exemption under Section 10 (10B) of the IT Act. VRS exemption under Section 10(10C): If an employee has received compensation under Voluntary Retirement Scheme (VRS), then he/she is eligible to claim tax exemption. According to Dr Surana, the exemption with respect to such severance pay is going to be subject to these conditions:

• The exemption amount is going to be restricted to Rs 5 lakh. Any sum over and above this threshold is going to be subject to tax.
• An individual is employed under specified categories of employers like a public sector company, central or state government, any authority created under Central, State or Provisional Act, etc.
• The employee should come under the guidelines prescribed under Rule 2BA of the Income Tax Rules, 1962.

Read all the Latest News , Trending News ,  Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.