As per section 10(10B), exemption is provided in respect of any
retrenchment compensation received by a workman under the provisions of the Industrial Disputes Act, 1947 or under
any similar enactment or under any rule, order or notification issued under such enactment or under any standing
order, award, contract of service or agreement.
The maximum amount exempt is the lower of the
1. Amount calculated under section 25F of the Industrial
Disputes Act, 1947.
Note: As per section 25F(b) of the Industrial
Disputes Act, 1947, the workman has to be paid at the time of retrenchment, compensation which
shall be equivalent to fifteen days average pay for every completed year of continuous service
or any part thereof in excess of six months.
Average Pay means the average of the wages payable to
the workman as under:
the wages payable in three complete calendar months preceding the date on
which average pay becomes payable.
the wages payable in four complete weeks preceding the date on which
average pay becomes payable.
the wages payable in twelve full working days preceding the date on which
average pay becomes payable.
In case the workman has not worked for the
full period as specified in the above table, average pay shall be calculated as the average of
wages payable to a workman during the period for which he actually worked.
2. Maximum monetary ceiling specified vide Notification
No.10796 dated 16.2.1999 which is Rs.5,00,000.
Other points to be noted:
Excess received: The amount received in excess of the lower of the above two
amounts is taxable.
Notice to Employee: As per the Industrial Disputes Act, 1947, the workman has to be
given one month’s notice indicating the reasons for retrenchment and the period of notice has expired, or the
workman has been paid in lieu of such notice, wages for the period of notice.
Closing down of the undertaking: In case of closing down of the undertaking as per Section 25FFF
of the Industrial Disputes Act, 1947, every workman who is in continuous service for more than one year in that
undertaking immediately before such closure shall be paid retrenchment compensation in accordance with section
However, if the undertaking is closed down on account of
unavoidable circumstances beyond the control of the employer, the compensation to be paid to the workman under
Section 25F(b) shall not exceed his average pay for three months.
However, in the following circumstances, the closure of
undertaking shall not be deemed to be closed down due to unavoidable circumstances beyond the control of the
employer (Section 25FFF(1):
Ø Financial difficulties including financial losses
Ø Accumulation of indisposed stocks; or
Ø Expiry of period of lease or licence granted to it;
Ø In case where the undertaking is engaged in mining
operations, exhaustion of the minerals in the area in which the operations are carried on.
Ø As per Section 25FFF(1A), no retrenchment
compensation needs to be paid to any workman on the closure of mine by reason of exhaustion of
minerals of that area, if the following conditions are fulfilled:
a. Employer provides the workman with
alternative employment with effect from the date of closure on the same remuneration as he was
entitled to receive, and on the same terms and conditions of service as were applicable to him,
immediately before closure.
b. The service of the workman has not been
interrupted by such alternative employment.
c. The employer, in terms of such alternative
employment or otherwise, is legally liable to pay the workman, in the event of his
retrenchment, compensation on the basis that his service has been continuous and has not been
interrupted by his alternative employment.
Ø As per Section 25FFF(2), Where any
undertaking set-up for the construction of buildings, bridges, roads, canals, dams or other
construction work is closed down on account of the completion of the work within two years from
the date on which the undertaking had been set-up, no workman employed therein shall be
entitled to any compensation under clause (b) of section 25F, but if the construction work is
not so completed within two years, he shall be entitled to notice and compensation under that
section for every completed year of continuous service or any part thereof in excess of six