Are you going to retire soon and you going to receive some money in the form of different heads at the time of retirement and you are worry regarding the Tax implication on them. There are lots of income which is tax free or exempted from tax but many people think that all money received is tax free, NO.
Let see which income you can get at the time of your retirement and is it tax free or not, if yes then you much its free and what’s the cap for it.
Employee Provident Funds
At the time of retirement you will get all contribution made by you and by your employer to EPF, all money received in the form of EPF is fully tax free but make sure your employer has invested in recognized PF, if its been invested in unrecognized one then its not tax free, and even interest credited under unrecognized fund is not tax free.
EPF, Employee Provident Fund, if your had been contributed more than 12% then its taxable, and interest from EPF is more than 9.5% than its been added to your Salary and taxable too.
RPF, Recognized Provident Fund, if you get RPF then it will be tax free only when you had worked with organization for more than 5 years, if you had worked less than 5 years then its taxable.
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Gratuity is the lump sum amount you get at the time of retirement being paid by your employer for rendering long term service to him. If you are an Government Employee (Central or State) than its full tax free. But if you are private employees and covered under Payment of Gratuity Act then less of following will be exempted :-
- Actual Amount Received,
- 15 days’ salary for each year of service (calculated dividing the last salary got by you by 26 as 26 is taken as most working days in a month) or
- Rs 10 Lakh
But there is an clause states that this is only tax free if you had rendered your service for at least 5 years. But this 5 year cap is not included in the death or disability of employee.
Commutation of Pension
Commutation Pension is a selling out part of your pension at a pre-determined rate. You will get a lump-sum amount of lieu of commutation. This amount is fully tax free. Pension Fund act will determine how much you can commute but its usually 1/3 of your pension. Commutation of pension is only applicable after 1 year of retirement and can be done only after medical examination.
Commutation Pension received by any Government employee whether of state or central, is fully tax free only if he has joined Central Government before 01/01/2004 or State Government before 01/11/2005.
Leave salary received by any government employee is full tax free but in case of Private employee, least of following is tax free :-
- Leave encashment Actually received,
- Last 10 months’ average salary
- Cash equal to leaves available in your account, Or
- 3 Lakhs
Dearness allowance or DA is paid on your basic salary or on pension. It is a percentage part of your salary. It is paid to meet the rising inflation in the country. DA is paid so that you can deal with the hike in prices. It is calculated on original pension original pension without commutation. DA is fully taxable even if you get arrears then it is also taxable but you can claim for relief under u/s 89(1).
Superannuation is part of contribution made by your employer on your behalf yearly. The company generally pays 15% of your basic salary to Superannuation fund and it does not required any contribution from employee. Superannuation is tax free only if it is paid death, retirement, in lieu of or as annuity, else its taxable u/s 10(10AA)(i)
New Pension Scheme
The New Pension Scheme (NPS) is a pension scheme launched by the Government of India to offer pension scheme for unorganized sectors. According to the scheme, employees contribute 10% of their Basic pay, Grade Pay and Dearness Allowance (DA) towards the Pension Fund Regulatory and Development Authority. Employer will contribute the equal amount. For tax implications and other details you can check out the links below.