Your Taxes

I was forced to quit my job during 2016-17 due to restructuring at my workplace. I received money from my pension fund with LIC — one-third as commutable pension (lumpsum) and the balance uncommutable pension, which is being received by me as monthly pension. I was also paid gratuity.

What is the tax implication of these receipts? I was doing trading in F&O segment (stock futures) and incurred a loss of ₹35 lakh in 2016-2017. Can I set off the loss against the pension and gratuity receipts to the extent possible and then carry forward the balance?

Santosh Iyer

Commutable pension from LIC pension fund is exemptfrom tax as per section 10(10A) of the Income Tax Act, 1961 However, monthly pension from the same fund is chargeable to tax as income from other sources.

Gratuity is exempt to the extent it does not exceed half month’s salary for each completed year of service subject to a maximum of ₹10 lakh (assuming your former employer was not covered by the Payment of Gratuity Act). If it was a covered establishment, then half month would have to be replaced with 15 days. For this purpose, salary means the average of your last ten months’ salary.

Trading in F&O segment is regarded as non-speculative business and trading loss can be set off against any income other than ‘Salaries’. Gratuity in excess of exemption limit, if any, is taxable under the head ‘Salaries’ and therefore cannot be set off against trading loss.

However, uncommuted pension from LIC is eligible and can be set off against such loss. The remaining loss, if any, can be carried forward and can be set off against non-speculative gains for a period of eight assessment years.

I am a pensioner. Due to some miscalculation, my bank was crediting less than my due as pension over the last 10 years. But after I intervened recently, the bank has now transferred what was due to me in the last 10 years as lumpsum to my account. Do I have to show all the arrears as this year’s income ?

Sahil

The lumpsum amount you have received due to a calculation error would be regarded as salary received in arrears and is taxable in the year of receipt.

However, relief under section 89 of the Act is available in respect of such arrears salary. The relief can be the difference in the tax liability for the current year considering the salary arrears and the tax liability for the respective years by including such income in those years to which it relates.

The writer is Partner, Deloitte Haskins & Sells LLP. Send your queries to taxtalk@thehindu.co.in

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