Understanding Section 10(10CC) of the Income Tax Act: Tax Exemption on Compensation Received Due to Disasters or Calamities

Section 10(10CC) of the Income Tax Act: An Overview

The Income Tax Act of India provides a number of tax exemptions and deductions to taxpayers, and Section 10(10CC) is one such provision. In this blog, we will explore what Section 10(10CC) entails, the benefits it offers, and the eligibility criteria for availing of these benefits.

Understanding Section 10(10CC)

Section 10(10CC) of the Income Tax Act refers to the exemption of any compensation received by an employee or his legal heirs on account of any disaster or calamity from his employer or from any other person. This compensation is exempt from tax up to a certain limit.

Benefits of Section 10(10CC)

The compensation received by an employee or his legal heirs due to a disaster or calamity is exempt from tax up to a limit of Rs. 5 lakhs. This means that the amount of compensation received up to Rs. 5 lakhs is not taxable in the hands of the employee or his legal heirs. This exemption is applicable to both monetary and non-monetary compensation.

Eligibility Criteria for Availing Benefits under Section 10(10CC)

To be eligible for the tax exemption under Section 10(10CC), the following criteria must be met:

1. The compensation must be received by the employee or his legal heirs as a result of a disaster or calamity.
2. The compensation must be received from the employer or any other person.
3. The compensation must not exceed Rs. 5 lakhs.
4. The compensation must be received in the financial year in which the disaster or calamity occurred.

Examples of Disasters or Calamities Covered Under Section 10(10CC)

Some examples of disasters or calamities that are covered under Section 10(10CC) are:

1. Floods
2. Earthquakes
3. Cyclones
4. Landslides
5. Droughts
6. Terrorist attacks
7. Accidents
8. Epidemics

Additional Features of Section 10(10CC)

Apart from the basic features of tax exemption up to Rs. 5 lakhs, there are some other important points to note about Section 10(10CC):

1. The exemption is available to both salaried and non-salaried individuals.
2. The exemption is available only for compensation received as a result of a disaster or calamity. It does not cover compensation received for any other reason.
3. The exemption is available only for compensation received in cash or in kind. It does not cover any other type of payment.
4. The exemption is available only for compensation received from an employer or any other person. It does not cover compensation received from insurance companies or any other entity.
5. The exemption is available only for compensation received in the financial year in which the disaster or calamity occurred.

Documentation Required for Availing Benefits under Section 10(10CC)

To claim the tax exemption under Section 10(10CC), the employee or his legal heirs must provide the following documentation:

1. Proof of the disaster or calamity, such as news reports or government notifications.
2. Proof of the compensation received, such as a letter from the employer or a bank statement.
3. Any other supporting documents as required by the income tax authorities.

Examples of Compensation Covered Under Section 10(10CC)

Compensation received by employees or their legal heirs due to a disaster or calamity can take various forms, and all of them are eligible for the tax exemption under Section 10(10CC). Some examples of compensation covered under this section are:

1. Compensation received from an employer for loss of property or assets due to a disaster or calamity.
2. Compensation received from an employer for medical treatment or hospitalization expenses incurred due to a disaster or calamity.
3. Compensation received from an employer for loss of income or livelihood due to a disaster or calamity.
4. Compensation received from an employer for any other type of loss or damage caused by a disaster or calamity.

Tax Treatment of Compensation Exceeding Rs. 5 lakhs

If the compensation received by an employee or his legal heirs exceeds Rs. 5 lakhs, the excess amount will be taxable in their hands. For example, if an employee receives a compensation of Rs. 6 lakhs due to a disaster, the first Rs. 5 lakhs will be exempt from tax under Section 10(10CC), but the remaining Rs. 1 lakh will be taxable as per the income tax laws.

Tax Treatment of Compensation Received from Insurance Companies

If an employee or his legal heirs receive compensation from an insurance company for losses due to a disaster or calamity, the tax treatment will depend on the type of policy and the specific terms and conditions of the policy. In general, compensation received from insurance companies is taxable unless it falls under the exceptions provided by the income tax laws.

Grow your business with Marg ERP! Easy GST invoices and filing.

Book Free Trial!

Conclusion

Section 10(10CC) of the Income Tax Act is a beneficial provision for employees and their legal heirs who have suffered losses due to disasters or calamities. By providing a tax exemption of up to Rs. 5 lakhs, this provision can help ease the financial burden on individuals who have already suffered a great deal. If you have been affected by a disaster or calamity and have received compensation, make sure to check whether you are eligible for the tax exemption under Section 10(10CC).

Read more useful content:

• section 145 of income tax act
• section 10e of income tax act
• section 9 of the income tax act
• section 94b of income tax act
• section 206aa of income tax act

Frequently Asked Questions (FAQs)

1. What is Section 10(10CC) of the Income Tax Act?

Section 10(10CC) is a provision of the Income Tax Act that provides a tax exemption for compensation received by employees or their legal heirs due to disasters or calamities.

2. What is the maximum amount of tax exemption available under Section 10(10CC)?
The maximum amount of tax exemption available under Section 10(10CC) is Rs. 5 lakhs.

3. Who is eligible to claim the tax exemption under Section 10(10CC)?
Employees or their legal heirs who have received compensation due to a disaster or calamity are eligible to claim the tax exemption under Section 10(10CC).

4. What types of compensation are covered under Section 10(10CC)?
Compensation received in cash or in kind from an employer or any other person for losses due to a disaster or calamity is covered under Section 10(10CC).

5. Is the tax exemption under Section 10(10CC) available to non-salaried individuals?
Yes, the tax exemption under Section 10(10CC) is available to both salaried and non-salaried individuals.

6. Does the tax exemption under Section 10(10CC) cover compensation received from insurance companies?
No, the tax exemption under Section 10(10CC) does not cover compensation received from insurance companies or any other entity.

7. Is there any documentation required to claim the tax exemption under Section 10(10CC)?
Yes, employees or their legal heirs must provide proof of the disaster or calamity, proof of the compensation received, and any other supporting documents as required by the income tax authorities.

8. What happens if the compensation received exceeds Rs. 5 lakhs?
If the compensation received exceeds Rs. 5 lakhs, the excess amount will be taxable in the hands of the employee or his legal heirs.

9. Can the tax exemption under Section 10(10CC) be claimed for compensation received in a previous financial year?
No, the tax exemption under Section 10(10CC) can be claimed only for compensation received in the financial year in which the disaster or calamity occurred.

10. How can I claim the tax exemption under Section 10(10CC)?
To claim the tax exemption under Section 10(10CC), you must file your income tax return and provide the necessary documentation to the income tax authorities.