Deductions from salaries
[Section 19 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 19(1) of Income Tax Act 2025
19(1) The income chargeable under the head “Salaries” shall be computed after making the deductions of the nature as mentioned in column B of the following Table, to the extent as mentioned in column C of the said Table:—
| Sl. No. | Nature of sum | Amount of deduction |
|---|---|---|
| A | B | C |
| 1 | Sum paid by the assessee as a tax on employment as per article 276(2) of the Constitution, leviable by or under any law. | Entire amount. |
| 2 | Standard deduction. | (a) ₹ 75,000 or the salary, whichever is less, where income-tax is computed under section 202(1); (b) ₹ 50,000 or the salary, whichever is less, in any other case. |
| 3 | Death-cum-retirement gratuity received as referred to in sub-section (2)(g). | Entire amount |
| 4 | Payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services. | Entire amount. |
| 5 | Gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972). | Amount received, as restricted to the amount calculated as per the provisions of section 4(2) and (3) of that Act. |
| 6 | Any other gratuity received by an employee— (i) on his retirement; or (ii) on his becoming incapacitated before such retirement; or (iii) on termination of his employment. | Amount being minimum of— (a) actual gratuity received; (b) amount specified by the Central Government, by notification, having regard to the limit applicable in this behalf to the employees of the Central Government; and (c) half month’s salary for each completed year of service, calculated as under:— Amount = 1/2 (A x B) where,— A = average salary for ten months immediately preceding the month when event occurs; B = number of such completed years. |
| 7 | Payment in commutation of pension received— (a) under the Civil Pensions (Commutation) Rules of the Central Government; or (b) under any similar scheme applicable to–– (i) the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union, [such members or holders not covered under (a)]; (ii) the members of the all- India services; (iii) the members of the defence services; (iv) the members of the civil services of a State, or the holders of civil posts under a State; or (v) the employees of a local authority or a corporation established by a Central Act or State Act or Provincial Act. | Entire amount. |
| 8 | Payment in commutation of pension is received under any scheme from any other employer. | (a) If the employee has received gratuity, the commuted value of one-third of the pension, which he is normally entitled to receive; (b) in any other case, the commuted value of one-half of such pension; (c) such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality. |
| 9 | Payment in commutation of pension received from a fund as specified in Schedule VII (Table: Sl. No. 3). | Entire amount. |
| 10 | Compensation received by a workman at the time of his retrenchment— (a) under the Industrial Disputes Act, 1947 (14 of 1947); or (b) under any other Act or rules, orders or notifications issued thereunder; or (c) under any standing orders; or (d) under any award, contract of service or otherwise. | Minimum of— (a) compensation received; (b) amount calculated as per provisions of section 25F(b) of the Industrial Disputes Act, 1947 (14 of 1947); (c) such amount, not being less than ₹ 50,000 as notified by the Central Government. |
| 11 | Compensation received by a workman in accordance with any scheme which the Central Government may approve in this behalf, having regard to–– (a) the need for extending special protection to the workmen in the undertaking to which such scheme applies; and (b) other relevant circumstances. | Compensation received. |
| 12 | Amount received or receivable on voluntary retirement or termination of service under a scheme or schemes of voluntary retirement, by an employee as referred to in sub-section (2)(h). | Minimum of— (a) compensation received; and (b) ₹ 5,00,000. |
| 13 | Payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise. | Entire amount. |
| Payment of the nature referred against serial number 13 received by an employee who is not a Central Government or State Government employee. | Amount being minimum of — (a) the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement, whether on superannuation or otherwise (entitlement of earned leave shall not exceed thirty days for every year of actual service); (b) amount “A”, where,— A =10×B; B = average monthly salary for the ten months immediately preceding his retirement whether on superannuation or otherwise; (c) amount as the Central Government may, by notification, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government; and (d) actual payment received. |
Section 19(2) of Income Tax Act 2025
19(2) For the purposes of the Table referred to in sub-section (1),—
- (a) in respect of the entries against serial number 6 thereof, if gratuity or gratuities was or were received from one or more than one employer in the same tax year (whether or not any gratuity or gratuities was or were received in any earlier tax year), the aggregate amount of deduction shall not exceed—
- A – B,
- where,—
- A = the limit specified by the Central Government, by notification; and
- B = the aggregate amount of gratuity or gratuities which was or were received in any one or more earlier tax years and allowed as an exemption or a deduction (whether whole or part) from the total income of any such tax year or years;
- (b) in respect of the entries against serial numbers 6 and 14 thereof, “Salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites;
- (c) in respect of the entries against serial numbers 10 and 11 thereof, the following amounts shall be deemed to be compensation received at the time of retrenchment:––
- (i) compensation received by a workman at the time of the closing down of the undertaking in which he is employed;
- (ii) compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, if—
- (A) the service of the workman has been interrupted by such transfer; or
- (B) the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer; or
- (C) the new employer is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer;
- (d) in respect of the entries against serial numbers 10 and 11 thereof, the expressions “employer” and “workman” shall have the same meanings as respectively assigned to them in the Industrial Disputes Act, 1947;
- (e) the provisions of the entries against serial number 12 thereof shall be subject to the following conditions:––
- (i) the applicable schemes of the said companies or authorities or societies or Universities or the institutes referred to in clauses (h)(vii)(x) and (j) in column B of the said serial number, governing the payment of such amount are made as per such guidelines (including, inter alia, criteria of economic viability) as prescribed;
- (ii) where deduction has been allowed to an employee in respect of the said item for any tax year, no deduction thereunder shall be allowed to him in relation to any other tax year; and
- (iii) where any relief under section 157 has been allowed to an assessee for any tax year in respect of any amount referred to in the said item, such amount shall not be allowed as a deduction from the compensation received or receivable in any tax year;
- (f) in respect of the entries against serial number 14 thereof, if any payment on account of cash equivalent to leave salary is received from one or more than one employer in the same tax year (whether or not any such payment or payments was or were received in any earlier tax year), the aggregate amount of deduction shall not exceed—
- Where,—
- A = the limit specified by the Central Government, by notification; and
- B = the aggregate amount of payment or payments which was received in any one or more earlier tax years and allowed as an exemption or a deduction (whether whole or part) from total income of any such tax year or years;
- Where,—
- (g) the death-cum-retirement gratuity referred to in sub-section (1) (Table: Sl. No. 3) shall be––
- (A) received under the revised pension rules of the Central Government, or the Central Civil Services (Pension) Rules, 2021; or
- (B) received under any similar scheme applicable––
- (i) to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said rules);
- (ii) to the members of the All-India services;
- (iii) to the members of the civil services of a State or holders of civil posts under a State; or
- (iv) to the employees of a local authority;
- (h) the schemes of voluntary retirement or termination of service as referred to in sub-section (1)(Table: Sl. No. 12) shall be for the employees of––
- (i) a public sector company (under a scheme of voluntary separation); or
- (ii) any other company; or
- (iii) an authority established under a Central Act or State Act or Provincial Act; or
- (iv) a local authority; or
- (v) a co-operative society; or
- (vi) a University established or incorporated by or under a Central Act or State Act or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956; or
- (vii) an Indian Institute of Technology within the meaning of section 3(g) of the Institutes of Technology Act, 1961; or
- (viii) the Central or any State Government; or
- (ix) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification, specify in this behalf; or
- (x) such institute of management, as the Central Government may, by notification, specify in this behalf.
FAQs on Section 19 of Income Tax Act 2025
1. What are the standard deductions available on salary income?
- A standard deduction of ₹75,000 or the salary amount (whichever is lower) is available if tax is computed under section 202(1).
- In other cases, the standard deduction is ₹50,000 or the salary amount (whichever is lower).
2. Is the tax on employment deductible?
Yes, the entire amount of tax on employment, as per Article 276(2) of the Constitution, is deductible.
3. Are gratuity payments exempt from tax?
- Death-cum-retirement gratuity: Fully exempt.
- Retirement gratuity (defense services): Fully exempt.
- Gratuity under the Payment of Gratuity Act, 1972: Exempt up to the amount calculated as per Section 4(2) and (3) of the Act.
- Other gratuities (on retirement, incapacity, or termination): Exempt up to the lowest of:
- Actual gratuity received
- Government-specified limit
- Half-month’s salary for each completed year of service.
4. Are pension commutation payments taxable?
If received under Civil Pensions Rules or similar schemes for government employees, the entire amount is exempt.
If received from any other employer:
- If gratuity is received: One-third of the commuted pension is exempt.
- If gratuity is not received: Half of the commuted pension is exempt.
5. Is retrenchment compensation taxable?
Compensation received upon retrenchment under the Industrial Disputes Act, 1947, or any other similar law is exempt up to the lowest of:
- Actual compensation received
- The amount calculated as per Section 25F(b) of the Industrial Disputes Act, 1947
- Minimum ₹50,000 as notified by the Central Government
6. Is compensation received under voluntary retirement schemes taxable?
Yes, but it is exempt up to ₹5,00,000, subject to the conditions set under the Act.
7. Is leave encashment at retirement taxable?
- For Central/State Government employees: Fully exempt.
- For other employees: Exempt up to the minimum of:
- Cash equivalent of leave salary for the earned leave at credit (max 30 days per year of service)
- 10 months’ average salary
- Amount notified by the Central Government
- Actual leave encashment received
8. Can multiple gratuities received in the same tax year be exempt?
Yes, but the total deduction cannot exceed the government-notified limit, after adjusting for gratuities received in prior tax years that were exempted.
9. What happens if I receive multiple leave encashment payments from different employers?
The total deduction cannot exceed the government-notified limit after adjusting for any exempted leave encashment received in earlier tax years.
10. Is compensation received on company closure or transfer of ownership taxable?
No, if the compensation is received under legally defined conditions similar to retrenchment (such as interruption of service, unfavorable new employment terms, or employer liability exemption).
11. Does this Act apply to voluntary retirement for private employees?
Yes, private-sector employees can claim deductions on voluntary retirement benefits, subject to conditions under the Act.
12. Do these exemptions apply to local government employees and university staff?
Yes, these exemptions apply to employees of local authorities, universities, IITs, and other notified institutions.
The Income Tax Act, 2025, provides several deductions under the head “Salaries”, ensuring tax relief on various employment-related payments. Key deductions include standard deductions, gratuity, pension commutation, retrenchment compensation, voluntary retirement benefits, and leave encashment, with specific exemption limits based on employment type and conditions.
Employees, whether in government, public sector, or private organizations, can benefit from these deductions, provided they meet the prescribed conditions. Understanding these provisions can help taxpayers optimize their tax liability and claim rightful exemptions.
For specific cases or clarifications, consulting a tax professional or referring to the official Income Tax Act guidelines is advisable.
