I had been terminated wrongfully and upon the judgement of the court recently, I have received a lumpsum amount from my employer. kindly suggest me the taxability of the same. If the lumpsum is considered as salary and any reliefs as per Income tax like i heard section 89 etc. And what if the amount is considered as compensation for the termination. Also if there is any different opinion on the amount received kindly share. Kindly suggest us on the above.
You will have to study court judgement to ascertain whether
the amount received by you is compensation or salary for notice period. If it is a salary for notice period then you will have find out what is the period for which salary is paid and offer the same for taxation and claim relief under section 89 and if the amount is compensation for termination of employment then it may not be taxable we will have to examine.
The amount that you have received from the employer can be covered under as profit in lieu of salary as defined under section 17(3)(i) of the Income tax act . Hence the compensation that you received is covered here . Further you can claim the relief from the Tax under section 89 read with rule 21A/21AA and form 10E .
Further please ensure that the amount received by you has not offered to tax under the due basis if any on earlier occasion . If so , please reduce that amount in the computation .
Here the law does not distinguish between capital receipt or revenue receipt . Every compensation covered in the above section are chargeable to tax under the head salary .
As per Sec. 17(3) ' profit in lieu of salary' include terminal compensation i.e. any amount of compensation due to or received by an assessee from his employer or former employer at or in connection with termination of employment or modification of terms and conditions of employment.
The termination may be due to retirement,premature termination termination, resignation or otherwise. Otherwise includes all the reasons whether compensation awarded by court also. Thus your amount which you received is taxable as salary.
Also we need to check whether the amount received is arrears of your salary or otherwise so as to claim relief u/s. 89 of the Income Tax Act,1961.
