The Central Board of Direct Taxes confirmed that ex-gratia compensation under the 2019 BSNL and MTNL schemes falls strictly under Section 10(10C) of the Income-tax Act. Under this rule, eligible personnel can access a one-time lifetime tax exemption capped at Rs 5 lakh, while any remaining sum faces taxation as regular salary income. The board explicitly excluded these packages from retrenchment relief under Section 10(10B), distinguishing them from past precedent involving the winding up of Hindustan Photo Film Workers Welfare Centre.
Key points
Retirees from BSNL and MTNL are explicitly barred from categorizing their scheme payouts…: Retirees from BSNL and MTNL are explicitly barred from categorizing their scheme payouts as retrenchment compensation under Section 10(10B).
Affected personnel must review their existing tax positions, judicial orders, and pending…: Affected personnel must review their existing tax positions, judicial orders, and pending condonation applications to ensure statutory compliance.
Tax authorities determined that the telecom payouts materially differ from court-approved…: Tax authorities determined that the telecom payouts materially differ from court-approved severance packages issued during corporate winding-up proceedings.
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In light of multiple legal cases and disputes regarding taxability of voluntary retirement scheme (VRS), the Central Board of Direct Taxes (CBDT) has issued a new notification clarifying the income tax treatment of VRS.
CBDT notification (F. No.173/32/2026-ITA-I) dated October 22, 2026 clarified that ex-gratia compensation received by employees retiring under Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) Voluntary Retirement Scheme, 2019 (VRS-2019), is governed by Section 10(10C) of the Income-tax Act, 1961, and is not covered under Section 10(10B), which deals with compensation on retrenchment.
CBDT said in the notification: “The matter has been examined by the Board in consultation with the Department of Telecommunications whereupon vide OM dated 08.04.2026…it has been clarified that the ex-gratia compensation paid under BSNL and MTNL VRS-2019 is in the nature of compensation received on voluntary retirement…”
This CBDT notification only clarifies that compensation under the BSNL and MTNL VRS-2019 must be treated as voluntary retirement compensation under Section 10(10C), and not as retrenchment compensation under Section 10(10B)
Chartered Accountant Suresh Surana says that after reading this notification, employees…
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