Retrenchment Compensation

Section 10(10B) Income Tax Act

Any compensation received by a workman under the Industrial Disputes Act, 1947 or under any other Act or rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise, at the time of his retrenchment. The amount is exempt under this clause to the extent of least of the following limits:

1. Actual amount received.
2. Amount specified by Central Government i.e. Rs.5,00,000.
3. An amount calculated in accordance with the provisions of clause (b) of Section 25F of the Industrial Disputes Act, 1947 i.e. 15 day’s average pay for every completed years of services or part thereof in excess of 6 months

Section 25F(b) of Industrial Disputes Act provides for payment of retrenchment compensation equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of six months. For this purpose, average pay will be calculated as under:

1. if the workman is getting monthly salary, then on the basis of the salary of last three calendar months; or

2. if the workman is getting weekly wages, then on the basis of wages of last four completed weeks; or

3. the workman is getting daily wages, then on the basis of wages of last twelve full working days.