Ex gratia on termination of service taxable

SC Vasudeva

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Q Please advise on the following two points:

1.) Whether the FDR deposited in a bank under Section 80C can be prematurely withdrawn?

2. One of my relatives has taken premature retirement on medical grounds from the bank under total incapacitation and got an ex gratia of Rs10 lakh at source. Please advise whether any rebate is allowed on this ex gratia and under which section. — Rajender

A) Your queries are replied hereunder:

(a) A fixed deposit made in a bank in accordance with the requirements of Section 80C of the Act cannot be prematurely withdrawn. This is in accordance with the Rule 11(2) of the Bank Term Deposit Scheme 2006, which provides that no term deposit shall be encashed before the expiry of five years from the date of its receipt. The only exception for encashment before its maturity is permitted in the event of the death of the first holder.

(b) In my opinion, there is no section which provides for any relief or rebate for the ex gratia amount received by an employee on termination of his employment. The exemption provided by Section 10(10C) of the Act is in respect of amount received on the voluntary retirement or termination of the services of an employee in accordance with any scheme or scheme of voluntary retirement or in the case of public sector company, scheme of voluntary separation to the extent such amount does not exceed Rs 5 lakh. If your friend is covered within the aforesaid scheme, an amount to the extent of Rs 5 lakh would be exempt from tax.

Q) I and my wife both are Punjab Government pensioners and filing our income tax returns. Our house is in our joint name as we both raised a joint loan during our service period for this house. This house is self-occupied and no part of it has ever been rented out. Which ITR form should we use for filing our I-T return because it is understood that joint property holders can’t file their returns on ITR I form. Will this condition be applicable on both of us?

b) If a joint family is living in one house, which has one electricity meter and the electricity bill exceeds Rs1 lakh yearly, which ITR form is to be used for filling the return? The head of the family, in whose name the electricity meter is, used to file his return on ITR I being a pensioner. Please advise. — Balbir Singh Batra

A. (a) The Central Board of Direct Taxes (CBDT) has issued a clarification that ITR-1 can be used by persons who jointly own an immovable property.

(b) The provisions relating to compulsory filing of return in respect of those persons who have incurred expenditure on electricity consumption exceeding Rs 1 lakh is applicable for assessment year 2020-21 (financial year ending March 31, 2020). The ITR form which would be applicable to such cases is yet to be notified. This provision would become applicable in respect of such persons who are not filing income-tax return in ordinary course. In case you are already filing or have filed the return in ITR-1, the CBDT may permit such persons to continue filing return in the same form in which they were filing it earlier.

Q I have been told that the Finance Minister has announced some concession in the Budget in respect of individual assessee who is not claiming any exemptions/deductions from his income. Please let me know the proposed income-tax rates in case an assessee chooses not to claim any exemption/deduction. — A Reader

A) The tax slab rates as per the newly proposed Section 115BAC of the Income-tax Act 1961 (The Act) which deals with such cases are as under:

Income slab Rate of tax

Up to Rs2,50,000 Nil

Rs2,50,001 to Rs5,00,000 5%

Rs5,00,001 to Rs7,50,000 10%

Rs7,50,001 to Rs10,00,000 15%

Rs10,00,001 to Rs12,50,000 20%

Rs12,50,001 to Rs15,00,000 25%

Above Rs15,00,000 30%

An assessee has an option to choose between new provisions or the existing provisions. This means that an assessee can opt for claiming the exemptions/deductions. Such an assessee would be taxable on the existing slab rates. The option for being taxed under new provisions can be exercised at the time of filing the return of income:

(a) For individuals and HUF having no business income – separately for every previous year.

(b) For individuals and HUF having business income – once exercised, shall be valid for that and all subsequent years.