mumbai the incometax act is intricate sometimes income received by an individual even if it relates to employment does not fit within the technical definitions of salary or profits received in lieu of salary thus very often such income could not be taxedbudget 201819 proposes to change this scenario a wide range of income received say noncompete payments which sometimes did not fit the above definitions of salary or profits in lieu of salary or compensation when a job offer went awry will now be taxablethe proposal perhaps also intends to bring within ambit of tax payments received in connection with employment but not from the employer in other words it covers cases where an employeremployee relationship does not exist between the payer and the receiver for example in case of termination of employment with an indian subsidiary company any severance pay received from a foreign holding company may be covered under this amendment it may also cover situations of merger and acquisition where payments are received by employees from the acquiring company or from the investors said puneet gupta director people advisory services at ey india a business consultancy firm the explanatory memorandum to the finance bill says a large segment of compensation receipts in connection with employment are out of the purview of taxation leading to base erosion and revenue loss it therefore proposes to amend section 56 of the it act any compensation or other payment due or received in connection with the termination of employment or the modification of the terms and conditions relating thereto will now be treated as income from other sources such sums received by individuals will be taxed in their hands at the applicable slab rate as per the budget proposals the highest tax rate for an individual who has a taxable income of more than rs one crore is nearly 36 per cent this amendment does not cover money received from an employer when handed a pink slip or in cases of vrs which will continue to be treated as salary income under existing it provisions and taxed accordingly gautam nayak tax partner at cnk associates a firm of chartered accountants explains in various decisions courts and tax tribunals have held certain receipts to be not taxable even as they related to employment this is because such receipts did not fall under the definition of salaries or profits in lieu of salary or because the employeremployee relationship was not in existence money received in such instances is now proposed to be taxed in simple terms receipts are classified into revenue receipts which are items of recurring nature such as salary business profits interest to name a few and capital receipts which are of an isolated nature a capital receipt is not income and hence it is not levied on it states nayak there are instances where compensation related to employment has fallen within the cracks and escaped it each such case typically involves compensation of at least rs one