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Voluntary retirement or separation – Sec 10(10C)

U.C Date : 25 Feb 2015

If an employee receives compensation(whether in one go or in instalments) on voluntary retirement or separation, Sec 10(10C) provides for exemption for such amount, subject to a maximum of Rs. 5,00,000.

This exemption is available to employee of any of the following:-

(i) a 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) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956

(vii) an Indian Institute of Technology within the meaning of clause (g) of section 378 of the Institutes of Technology Act, 1961 (59 of 1961)

(viii) any State Government

(ix) the Central Government

(x) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette82, specify in this behalf

(xi) such institute of management as the Central Government may, by notification83 in the Official Gazette, specify in this behalf

Conditions for claiming exemption [Rule 2BA]

  • It applies to an employee who has completed 10 years of service or completed 40 years of age. (This condition doesn’t apply to employees of public sector company)
  • It applies to all employees including workers and executives except directors of a company or co-operative society.
  • Such scheme has been drawn to result in overall reduction in no. of employees
  • The vacancy caused by voluntary retirement is not to be filled up.
  • The retiring employees of a company shall not be employed in another company or concern belonging to the same management.
  • Amount receivable on account of voluntary retirement does not exceed either of the following amount
  • 3 months x salary last drawn x completed year of service
  • Salary last drawn x balance of months left before the date of retirement or superannuation

Salary includes basic pay, dearness allowance (if it forms part of the retirement benefits) and percentage wise fixed commission on turnover

Notes:- If the assessee has already taken relief u/s 89, then exemption under this section is not available.

Deduction u/s 10(10C) can be taken once only, therefore if deduction under this section is taken once then deduction is not available in any subsequent years.

Bare Act for Sec 10(10C)

Bare Act for Sec 10(10C)

any amount received [or receivable]by an employee of—

(i)  a public sector company ; or

(ii)  any other company ; or

(iii)  an authority established under a Central, State or Provincial Act ; or

(iv)  a local [authority ; or]

(v) a co-operative society ; or

(vi)  a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956) ; or

(vii)  an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961) ; or

(viia)  any State Government; or

(viib)  the Central Government; or

(viic)  an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or

(viii)  such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf,

[on his] [voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i), a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees] :

Provided that the schemes of the said companies or authorities [or societies or Universities or the Institutes referred to in sub-clauses (vii) and (viii)], as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed :

Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year :] [Provided also that where any relief has been allowed to an 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 this clause shall be allowed to him in relation to such, or any other, assessment year;]

4 comments

  1. Benjamin A Pereira

    Is this exemption allowed to employees who are retrenched by the company due to reduction in staff cost and a one time severance pay is paid in their Full & final settlement?

  2. My father has taken VRS from 1 co-operative bank in Rajkot. I want to know whether he is eligible for take deduction u/s 10(10c) because in section 10(10c) specified about co-operative society and not mention about co-operative bank. Plz give me solution as soon as possible.

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