Severance Pay Tax in India (2026): Is Your Layoff Package Taxable? Notice Pay, Ex Gratia, Retrenchment Compensation, Gratuity and Leave Encashment Under the Income-tax Act, 2025
Laid off in 2026? Your settlement is taxed line by line under the Income-tax Act, 2025: notice pay in full; severance as profits in lieu of salary unless it is retrenchment compensation to a worker (up to Rs 5 lakh deductible); gratuity up to Rs 20 lakh; leave encashment up to Rs 25 lakh.
Deep Jasani
@deepjasani17
I write on the income-tax beat here — ITR form selection and filing mechanics, the old-versus-new regime comparison, capital gains, the Section 87A rebate, TDS credit mismatches, and the interest that runs under Sections 234A, 234B and 234C. I work from the bare Act text and CBDT circulars rather than secondary commentary, and I put worked examples in using the numbers you actually see on the Income-tax Department portal. I'm writing for people filing their own return as much as for practitioners with a desk full of them.