Illustrations including deduction of Retirement Benefits
by Illustration 1: Gratuity
Mr. A receives a salary of ₹8,00,000 during the year. He also receives gratuity of ₹3,00,000 on retirement. Assume ₹2,50,000 of gratuity is exempt under the applicable provisions.
Solution:
| Particulars | Amount |
|---|---|
| Salary | ₹8,00,000 |
| Gratuity received | ₹3,00,000 |
| Less: Exempt gratuity | ₹2,50,000 |
| Taxable gratuity | ₹50,000 |
| Gross Salary | ₹8,50,000 |
If standard deduction of ₹50,000 is applicable:
Taxable Salary = ₹8,50,000 − ₹50,000 = ₹8,00,000
illustration 2: Leave Encashment
Mr. B receives salary of ₹7,00,000 and leave encashment of ₹4,00,000 at the time of retirement. Assume ₹3,00,000 is exempt under the applicable provisions.
Solution:
| Particulars | Amount |
|---|---|
| Salary | ₹7,00,000 |
| Leave Encashment | ₹4,00,000 |
| Less: Exempt amount | ₹3,00,000 |
| Taxable Leave Encashment | ₹1,00,000 |
| Gross Salary | ₹8,00,000 |
| Less: Standard Deduction | ₹50,000 |
| Taxable Salary | ₹7,50,000 |
illustration 3: Pension
Mr. C receives pension of ₹3,60,000 during the year after retirement. He also receives commuted pension of ₹5,00,000. Assume ₹3,00,000 of the commuted pension is exempt under the applicable provisions.
Solution:
| Particulars | Amount |
|---|---|
| Pension | ₹3,60,000 |
| Commuted Pension | ₹5,00,000 |
| Less: Exempt Commuted Pension | ₹3,00,000 |
| Taxable Commuted Pension | ₹2,00,000 |
| Gross Salary | ₹5,60,000 |
| Less: Standard Deduction | ₹50,000 |
| Taxable Salary | ₹5,10,000 |
illustration 4: Multiple Retirement Benefits
Mr. D receives the following amounts on retirement:
Salary = ₹6,00,000
Gratuity = ₹4,00,000
Leave Encashment = ₹3,00,000
Commuted Pension = ₹5,00,000
Assume the following amounts are exempt:
Gratuity = ₹3,00,000
Leave Encashment = ₹2,00,000
Commuted Pension = ₹3,00,000
Solution:
| Particulars | Amount |
|---|---|
| Salary | ₹6,00,000 |
| Taxable Gratuity | ₹1,00,000 |
| Taxable Leave Encashment | ₹1,00,000 |
| Taxable Commuted Pension | ₹2,00,000 |
| Gross Salary | ₹10,00,000 |
| Less: Standard Deduction | ₹50,000 |
| Taxable Salary | ₹9,50,000 |
Thus, retirement benefits are first examined for the applicable exemption. The taxable portion is then