05 August 2012
Haryana Government Service Rules earlier provided for employment of next eligible in case of death of an existing employee. However the practive of providing alternate employment has been dispensed with and a monetary help in the shape of financial assistance is provided to the spouse of such deceased employee which is equal to his/her last salary drawn and it continues till such deceased employee (if alive) would have reached the age of retirement. There-after the spouse gets normal pension/family pension as the case may be.
My querry is whether such assistance is "Profit in liew of Salary" or is taxable under the head "salaries" or is taxable under the head "income from other sources"
05 August 2012
Income from other sources. (The better opinion can be provided after reading the exact wordings of the FINANCIAL ASSISTANCE given by Haryana Govt. (It is slightly hard to believe that the assistance is equal to LAST DRAWN SALARY. Since the person has died, the family expenditure of one person must have gone down. If it is equal to LAST salary drawn, then it involves a sum of GRATUITY... that is why a careful reading of the same is required.)
06 August 2012
respected sir 573/1990 and 776/1999 both are the rule when ex gratia payment received once a time plz tell me if it will be received monthly basis
31 July 2024
The assistance provided by the Haryana Government to the spouse of a deceased employee, which is equal to the last salary drawn and continues until the deceased employee would have reached the age of retirement, falls under the category of "salaries" for tax purposes. Here’s a detailed analysis:
### Taxability of Financial Assistance
#### 1. **Nature of Financial Assistance**: - This financial assistance is akin to the salary that the deceased employee would have earned had they been alive. It is a periodic payment meant to replace the salary income of the deceased employee.
#### 2. **Tax Treatment**: - The assistance is considered a replacement of the salary and hence is treated as "Income under the head 'Salaries'". - The Income Tax Act, 1961, under Section 17(1), includes within the definition of salary, wages, annuity, pension, gratuity, fees, commission, perquisites, or profits in lieu of or in addition to any salary or wages.
#### 3. **Profits in Lieu of Salary**: - According to Section 17(3) of the Income Tax Act, "profits in lieu of salary" includes any compensation due to or received by an employee from their employer in connection with the termination of employment or any modification of the terms and conditions relating thereto. - However, since the assistance provided by the Haryana Government is a periodic payment equivalent to the salary the deceased employee would have earned, it is not a lump-sum ex gratia payment but rather a continuation of the salary.
### Case Laws and Rules
- **Rule 573/1990 and 776/1999**: These rules pertain to ex gratia payments which are typically one-time payments made to the family of a deceased employee. In the case of Haryana Government's assistance, the monthly payments mimic the salary structure, thus aligning more closely with regular salary income rather than a one-time ex gratia payment.
### Conclusion
- **Taxable Under 'Salaries'**: - The financial assistance provided to the spouse of the deceased employee should be considered as income under the head 'Salaries'. This is because it represents a continuous payment, similar to the salary that the deceased employee would have received.
- **Pension/Family Pension**: - After the period of financial assistance ends (i.e., when the deceased employee would have reached retirement age), the spouse will receive normal pension or family pension, which is also taxable under the head 'Salaries' but with specific exemptions under Section 10(10A) of the Income Tax Act.
### Practical Steps
1. **Reporting in Income Tax Return**: - The spouse receiving the financial assistance should report this income under the head 'Salaries' in their income tax return. - They should also maintain records of the payments received and any related documentation provided by the Haryana Government for accurate reporting and compliance.
2. **Exemptions and Deductions**: - While the financial assistance is taxable, the spouse may be eligible for standard deductions available to salaried individuals. - After the assistance period, when pension or family pension starts, they can claim exemptions available under Section 10(10A).
For specific guidance and accurate computation, it is recommended to consult a tax professional or a chartered accountant who can provide personalized advice based on the exact nature of the payments and relevant documentation.
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