BSNL VRS payout tax break: ITAT ruling opens Rs 40 lakh relief window

In the May 21 order, the bench held that the ex gratia compensation under the BSNL VRS-2019 scheme falls under Section 10(10B), not the capped exemption under Section 10(10C). The tribunal noted the scheme formed part of the Union Cabinet-approved BSNL revival package announced on October 23, 2019, with compensation funded through government budgetary support.

The ruling turned on the scheme's legal character. While labeled a voluntary retirement scheme, the tribunal found its substance matched a government-approved retrenchment scheme. Standard VRS coverage under Section 10(10C) did not fit, the bench said. The Assessing Officer has been directed to delete the tax additions on the ex gratia amount and grant consequential relief.

The order strengthens a growing judicial view that BSNL VRS-2019 compensation can bypass the ₹ 5 lakh Section 10(10C) ceiling. It does not automatically exempt compensation from every voluntary retirement scheme. The ITAT grounded its decision in the specific structure of the BSNL 2019 package its origin in the government's revival plan and its operation as a retrenchment measure.

For BSNL employees who took the 2019 VRS and paid tax on ex gratia payouts, the ruling offers a persuasive precedent in similar disputes. Each case will turn on its facts and the evolving judicial stance on the issue.