Home > Income Tax > Help Center > Retirement Benefits Last Updated: Feb 02nd 2023
Generally, employees receive certain retirement benefits once they are retired from their service (employment). The amounts received at the time of retirement contains gratuity, leave encashment, commuted pension, annuity etc.
The taxation of retirement benefits differs in the hands of central government employees, state government employees and private employees. Also, there are certain exemptions provided by the Government in case of retirement benefits.
Employees receive retirement benefits in various forms
Types of retirement benefits
Gratuity is a voluntary payment made by an employer in appreciation of the services provided by the employee.
Note: No of days per month to be taken as 26 days
Note 1: Gratuity received during the period of service is taxable
Note 2: Gratuity is available to the employees who has completed 5 years of employment
Generally employees are allowed leaves during the period of service. Employees may avail such leaves or the leaves may either lapse or accumulated for future or allowed to be encashed every year or at the time of retirement/termination. The payment received on account of encashment of unutilized leave is called Leave Encashment.
Note: Leave Encashment received during the period of service is taxable.
Pension is a periodic payment made by Government or a company or other employers to the employee in consideration of past service payable after his retirement
Pension is of 2 types i.e., Un commuted and Commuted Pension
Lumpsum Payment or otherwise received by an employee at the time of voluntary retirement is taxable.
Exemption of maximum Rs 5,00,000 is applicable only if the amount is received from the employers of Public sector company, any other company, local authority, cooperative society, IIT, State Government, Central Government.
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