Those planning to opt for voluntary retirement, but are worried about the tax, can now breathe easy.
The commissioners of income tax (appeals) in Mysore, Mangalore and Hyderabad have ruled in separate cases that assessees can claim relief even if the assessable income is over Rs 500,000, "if such payment is in the nature of compensation received by the assessee from his employer in connection with the termination of his employment".
The only rider is that the assessee must have been in continuous service for "not less than three years". Besides, the number of years of service remaining under the terms of employment should not be less than three years.
Currently, the income-tax department taxes all income over Rs 500,000 received as compensation for voluntary retirement.
The commissioners delivered their rulings on appeals by bank employees opting for voluntary retirement, after the department disallowed their claims of relief under Section 89(1) of the Income Tax Act, 1961. Legal sources said income-tax relief could now be claimed by employees of other industries too.
The assessing officers' contention was that relief under Section 10(10C) of the Income Tax Act, read with Rule 2BA, was permissible to the extent of Rs 500,000 only in respect of ex gratia payment received under voluntary retirement schemes.
Further, they ruled that relief under Section 89(1) was allowable in respect of ex gratia payment in excess of Rs 500,000, only if the Central Board of Direct Taxes deemed it fit.
The appellant in the Mysore case pointed out that the Madras High Court had ruled in favour of an appellant who had claimed relief under Section 89(1) of the Income Tax Act.
The commissioner of income tax (appeals) in Mangalore underscored the fact that "Rule 21A(4) provided by way of tax reduction an amount that would reduce the tax to what was payable, if the amount was distributed in three years."
"Thus there is no complexity involved in the computation of relief under Section 89(1) of the Act. The assessee is required to file an application and furnish the required particulars--Form 10E--in this regard to the assessing officer for claiming relief," the commissioner (appeals) in Mangalore held.