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Retrenchment

Ruchika majumdar (Student) (34 Points)

31 December 2014

What is retrenchment ??

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Vishal Goel (Chartered Accountant) (1688 Points)
Replied 23 March 2015

Hello,

There are times when an organization or a company is forced to close down its operations due to various reasons such as – Lack of sufficient funds to continue the operation in its existing shape and form, Death of the proprietor,inability to survive in the competitive environment, Bad Management, Major failure of products, Professional Incompatibility between the founding members of the Organization, Major changes in market trends making a company obsolete, Inability to pay its major debtors and many more such reasons.

Whatever be the reason for closure, the Indian Industrial Disputes Act of 1947, stipulates that the workers who have been working in such organization are adequately compensated to take care of their immediate future. This is where retrenchment of workers comes into picture

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Vishal Goel (Chartered Accountant) (1688 Points)
Replied 23 March 2015

Retrenchment Compensation means any payment received by an employee on termination of his contract of service either due to his professional misconduct, violation of Company policies, or due to incapability of the company to continue any of its units further.

TAXABILITY:

Retrenchment Compensation received by a workman under the Industrial Disputes Act 1947 or any other Act is exempted to the following limits.

Least of the following is exempt:

Amount actually received.
15 days average pay for every completed year of continuous service or part thereof in excess of 6 months.
Basic exemption limit of 5, 00,000.