Have you ever wondered why people in our country still crave to get into a government job despite the swanky workplaces as well as the high-end lifestyle offered by the private sector?
Well, the answer lies in the numerous benefits which a government employee is eligible to avail. A government employee not only enjoys high prestige in the society but also other benefits such as job security, fixed working hours, paid holidays, retirement benefits, and most important of all various tax benefits on his salary as compared to a non-government employee.
Let me take you through the prominent differences in the tax implications on the Salary Income of a private sector employee as compared to a Government Employee. It includes the treatment of various incentives, retirement benefits, or deductions received by employees of both sectors. We will discuss all these benefits one by one in detail. Let’s begin.
Firstly, we will start with the salary benefits available to Government employees :
SALARY BENEFITS
Dearness Allowance (DA):
Dearness Allowance (DA) is an allowance paid to government employees as a cost of living adjustment to cope with inflation. It has hiked from the existing 17% to 28% percent of the basic pay for central government employees and autonomous bodies from July 2021.
DA paid to employees is fully taxable with salary. The Income Tax Act mandates that tax liability for DA along with salary must be declared in the filed return.
DEDUCTION FROM SALARY
Entertainment Allowance:
The deduction on this allowance is allowed only to a Government Employee. That means the non-government employees shall not be eligible for deduction if an entertainment allowance is received by them.
The deduction from the gross salary of the government employees shall be a minimum of the below three limits :
- Actual entertainment allowance received
- 1/5th of salary exclusive of any allowance, benefit, or perquisite.
- Rs. 5000
Foreign allowances :
Foreign Allowances or perquisites paid or allowed only to Government Employees posted outside India are fully exempt from tax.
Allowances to members of UPSC :
The serving Chairman or Member of UPSC is given the following tax-free allowances and perquisites:
- Value of rent-free official residence
- Value of conveyance facilities including transport allowance
- Sumptuary allowance (This allowance is provided to the members of honorary posts for daily expenditures.)
- Leave travel concession
Further, if allowances are provided to Retired Chairman/Members of UPSC then the tax exemption shall be up to Rs.14,000 per month for offering services on a contract basis.
Allowances by UNO :
Allowances paid by the UNO to its employees are also exempt.
Allowances to Judges :
Allowances paid to Judges of the High Court or Supreme Court are exempt from tax. Eg - The compensatory Allowance is exempt.
Allowances to SAARC member states:
Salary, as well as allowances received by the professors from SAARC member states, are also exempt.
RETIREMENT BENEFITS
Gratuity
It is a part of salary which you receive as an appreciation from your employer for the services offered to the company. You are eligible to receive gratuity only if you have rendered services for 5 continuous years or more to the organisation.
The amount of Gratuity received is fully exempt from tax
Pension
With time, only you retire but your tax does not!! Tax will always be levied till the time a person earns Income irrespective of age. A pension is a payment made by the employer at the time of retirement as a reward for a past service. There can be two types of pension. The brief description is as under:
- Uncommuted Pension: If the Pension is received periodically i.e. on monthly basis then it is fully taxable in the hands of both government as well as non-government employees.
- Commuted Pension: It refers to a lump-sum pension payment received in place of periodic pension. The taxability has been defined under the income tax act:
The amount received is fully exempt from tax
Leave Encashment
Every organisation grants certain leaves to its employees and these leaves, if unused, can either be carried forward or are lapsed at the end of the year. You can encash the unused accumulated leaves, depending upon the policy of the company either during the time of employment or at the time of retirement.
Tax Treatment of Leaves encashment :
Received during employment: Where the leaves are encashed during the period of employment, it is fully taxable for the government as well as non-government employees.
Received at the time of retirement: The amount shall be fully exempt for government employees.
The numerous tax benefits enjoyed by the government employee could be one of the reasons which give them an edge over the non-government employee. However, the job content and job satisfaction should be equally evaluated before deciding upon the organisation you wish to work for.
