to an unrecognised provident fund are taxable as income in the year of receipt.
Leave encashment: The sum received in respect of period of earned/unutilised leaves standing to the credit of the employee. Leave encashment received by government employees at the time of retirement is fully exempt. In case of other employees, the tax-exemption is the least of the following: a) cash equivalent of leave salary in respect of period of earned leaves available upon retirement; b)10 months’ average salary; c) R3 lakh; d) leave encashment actually received at the time of retirement.
Payment under VRS: Compensation received at the time of voluntary retirement from employment taken in accordance with VRS. It is exempt in case of government employees and certain other employees up to a maximum of R5 lakh upon fulfillment of prescribed guidelines.
As we see from above, various tax benefits are available on retirement compensation. It is important to carefully evaluate tax consequences on various forms of retirement compensation received by an individual. A careful tax planning on your hard-earned money is the way to a healthy and worry-free retirement life.
The writer is managing partner, Nangia & Co