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Retrenchment Compensation – Sec 10(10B)

U.C Date : 25 Feb 2015

Retrenchment compensation received by an assessee shall be exempt of the least amount from the following.

  • Actual amount received
  • 5,00,000
  • An amount calculated in accordance with sec 25F(b) of the Industrial Disputes Act, 1947 i.e 15 days average pay x completed year of service or part thereof in excess of 6 months

Bare Act for Sec 10(10B)

Bare Act for Sec 10(10B)

any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise, [at the time of his retrenchment :

Provided that the amount exempt under this clause shall not exceed—

(i)  an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947) ; or

[(ii)  such amount, not being less than fifty thousand rupees, as the Central Government may, by notification in the Official Gazette, specify in this behalf,]

whichever is less :

Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such scheme applies and other relevant circumstances, approve in this behalf.]

Explanation.—For the purposes of this clause—

(a)  compensation received by a workman at the time of the closing down of the undertaking in which he is employed shall be deemed to be compensation received at the time of his retrenchment ;

(b)  compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, shall be deemed to be compensation received at the time of his retrenchment if—

(i)  the service of the workman has been interrupted by such transfer ; or

(ii)  the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer ; or

(iii)  the new employer is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer ;

(c) the expressions “employer” and “workman” shall have the same meanings as in the Industrial Disputes Act, 1947 (14 of 1947);]

4 comments

  1. Dear Sir

    I have been asked to resign immediately due to shutting down of a department in my company. The HR said they will pay 9 months severance package. But they said they cannot provide tax relief according to section 10 (10B), as they claim this is like a voluntary resignation. If they calculate that way the severance will be very less.

    So I have to pay the highest tax of 30% for the severance pay.

    My question is can I claim exemption under section 89 (1)?
    Do I need to pay the tax of 30% as the company says?

    This is financial year 2015-16. So which financial year or assessment year should I claim exemption under section 89(1) ?

    • Rohit Agarwal

      Hello Gopal,

      Section 89 do not apply on the amount received or receivable by an assessee on his voluntary retirement or termination of his service.

  2. Mohit malhotra

    Can I claim refund on it for AY 20142015?

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