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The Bank and PSU Employees Pay Tax on retirement benefits like LFC and commuted pension. This is totally shocking and unreliable for a retired person when he has to pay tax on whole life earnings.
On the other side, employees working under state and central government are fully expected from all retirement benefits. then why this Injustice taxation on just other employees. this dispute is already raised in various courts of India but still, there is no exact judgment came from the judicial system.
Public Sector Undertaking and Nationalised Banks are discerned against vis-a-vis the Central Government and State Government workers, on the other hand, the limit for impunity has remained stationary and has not been enhanced since 1998, indeed though, multiple Pay Commissions have come into force and have been enforced/ espoused since also, indeed in respect of Public Sector Undertakings and Nationalised Banks.
Every year more than 1lakh employees retired from nationalised banks and public sector undertakings who contribute lots of direct tax to the government treasury. this could be another reason that government don’t want to lift the tax burden from retired employees. The government will lose a lot of collection if they change in income tax act for retired employees.
Employees from Public Sector Undertaking and Nationalised bank have to pay tax on Leave encashment and commuted pension, although gratuity received on retirement is fully tax-free. The Government has given special section 10A to get some relief in tax.
Leave Encashment Tax Benefit on Section 10(10AA)
The leave encashment quantum actually entered is taken into account The average payment of 10 months. The payment includes introductory payment and honey allowances. Also, the commission entered is considered.
The payment of 10 months actually considered is on the base of payment entered during the 10 months antedating their withdrawal or abdication. Indeed if the hand has accumulated a number of leaves in a time,
The association will consider only outside of 30 days of leave a time for the encashment process. According to it, the total number of paid leaves will be calculated altogether during the withdrawal or abdication and also encashment will be reused further.
Suppose a person has not employed all the paid leaves and it accounts for 45 days still the association will only consider 30 days of paid leave for encashment at the time of abdication or withdrawal. In the case of leave encashment during the employment period, the quantum entered will completely be taxable in all forms. But according to Section 89, Income Tax Act, the hand can claim for duty relief from their leave encashment quantum.
For workers who have retired after 1998, their leave encashment quantum is subordinated to a maximum limit ofRs. 3lakh, to be entered which is specified by the government. When the factual quantum to be entered will be further will be entered as the encashment quantum and the remaining quantum will be entered in the payment account which will be taxable. This case applies only to non-government workers.
The legal inheritors of departed workers at the time of leave encashment can admit the quantum without any form of duty deduction from the quantum. In case of abdication or termination, both government and non-government workers are held to pay the duty on the quantum entered from paid leave encashment because the quantum at the time is considered as income from payment by the income duty department. The rate of duty to be paid is applied the same as during income duty on payment.
This advance lump sum payment of pension is known as a commuted pension. The monthly pension that one receives from the annuity fund is uncommuted pension. As per the tax laws, the uncommuted pension is fully taxable. Same Injustice is here commuted pension is fully tax-free for state and central government employees where for others it will taxable as per laws.
Commuted Pension Tax Benefit on Section 10(10AA)
The commuted pension is fully exempt from income tax for government employees. For a non-government employee who receives pension along with gratuity, 1/3rd of the 100% of the commuted pension is exempt.
The rest is taxed, like their salary. If a non-government employee only receives a pension and not gratuity, 50% of the 100% of the commuted pension is exempt.
Commuted pension received by family members of the employee is tax-exempt up to 1/3rd of the pension amount or up to Rs. 15,000 in a financial year, whichever is lower. Pension received by family members of armed forces or that by UNO employees is also tax-exempt
The tax burden on retirement corpus is injustice with employees of banks and PSU employees. Bank and PSU Employees Pay Tax on LFC and Commuted pension so we request you our finance minister, please change on tax laws for retired employees.