Amount paid by employee on termination of employment

This query is : Resolved 

13 July 2009 consider the following situation:

Mr.A is employed with xyz ltd. under the terms of employment if Mr.A is to leave employment before a certain period, he is to pay the xyz ltd Rs. 4,00,000. suppose Mr. A terminates his contract with xyz ltd and joins ABC ltd by paying Rs. 4,00,000 to xyz ltd, can Mr. A claim exemption for this amount in the following situations:

1. Mr.A pays Rs.400000 on his own

2. ABC ltd pays Rs.400000 to Mr.A to pay to xyz ltd

13 July 2009 1 . it will not be allowed as deduction.
2. it will be added in salary as profit in lieu of salary.

14 July 2009 completely agree with Jitender


14 July 2009 1 is OK but 2 will not be profit. it is different because 400,000 will be reiumbersement on proof of notice pay or XYZ will deduct from sattlement. So treatment will be different in IT return.no way ? How it will be profit in lieu of salary.

16 July 2009 The query answered by Jitender is correct As the amount paid by the prospective employer is not reimbursement of any expenditure, but is a liability of the employee / individual born by the new employer. Assume a situation, where the new employer has not born the expenditure, then the assessee would have paid the same to previous employer out of his legitimate income after paying taxes, thus when the such expenditure is being paid by prospective employer, the individual is earning an income and then meeting an obligation. Thus the payment so made by future employer is taxable in the hand of the employee / individual.



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