BSNL VRS-2019 Ex-Gratia Tax Exemption

In 2019, the Government of India approved a comprehensive Revival Package for BSNL and MTNL. As part of this initiative, Bharat Sanchar Nigam Limited launched the BSNL VRS 2019 to reduce employee costs and enhance the financial health of the organization. More than 78,000 BSNL employees chose to participate in this scheme. Employees who accepted the BSNL VRS 2019 received various benefits, including: ex-gratia compensation, leave encashment, gratuity, provident fund benefits, pensionary benefits (where applicable), and other retirement dues. While gratuity and certain retirement benefits were generally exempt from taxation, many employees faced tax implications on the ex-gratia compensation due to it typically being eligible only for limited exemptions under Section 10(10C), impacting income tax relief for BSNL retirees.

When Income Tax Returns were filed for Assessment Years 2020-21 and 2021-22, most BSNL employees eligible for the BSNL VRS 2019 relied on the Form 16 issued by BSNL. Tax software automatically computed tax, while tax professionals followed the prevailing interpretation. The ex-gratia compensation tax was generally applied after claiming only the exemption available under Section 10(10C), where applicable. As a result, many retirees experienced excess income tax payments, leading to higher surcharge and cess in numerous cases, and unfortunately, opportunities for income tax relief for BSNL retirees were missed.

After several appeals, different Benches of the Income Tax Appellate Tribunal examined the BSNL VRS 2019 Scheme in detail. The Tribunals observed that the BSNL VRS 2019 was introduced under the Government-approved revival package and had characteristics of retrenchment compensation. Notably, the ex-gratia compensation qualified for exemption under Section 10(10B), subject to the conditions discussed in judicial decisions. The assessees were directed to submit revised computations before their jurisdictional Assessing Officers for verification and grant of consequential income tax relief for BSNL retirees. These rulings have provided substantial relief to many retired BSNL employees.

Several ITAT Benches have delivered favourable decisions in BSNL VRS 2019 cases, including: ITAT Chandigarh, ITAT Ahmedabad, ITAT Pune, ITAT Mumbai, ITAT Nagpur, and ITAT Chennai. These decisions consistently recognised the nature of the ex-gratia compensation tax related to the BSNL VRS 2019 compensation and granted income tax relief for BSNL retirees in appropriate cases.

You may have a valid claim if: You were employed by BSNL, opted for BSNL VRS 2019, and received ex-gratia compensation. If income tax was deducted from your ex-gratia compensation or you paid tax while filing your return, you could qualify for income tax relief for BSNL retirees. Your return should relate to AY 2020-21 or AY 2021-22 (or another relevant assessment year based on your specific situation). Additionally, you have not yet received the benefit of the favorable judicial rulings.

The amount of income tax relief for BSNL retirees is influenced by several factors, including: 

- Ex-gratia compensation received 

- Tax deducted by BSNL 

- Other income during the year 

- Applicable surcharge 

- Cess 

- Interest under the Income-tax Act 

- The outcome of your appeal or claim 

Many retirees under the BSNL VRS 2019 may find themselves eligible for refunds that range from a few thousand rupees to several lakhs, depending on their individual circumstances.

In many cases, yes. The appropriate remedy for ex-gratia compensation tax related to the BSNL VRS 2019 depends on several factors: whether your return was processed under Section 143(1), whether an assessment order has been passed, whether you have already filed an appeal, whether statutory time limits apply, and whether the delay can be condoned based on the facts of your case. Recent ITAT decisions have also condoned significant delays in appropriate cases where taxpayers, including BSNL retirees seeking income tax relief, established sufficient cause. However, this ultimately depends on the specifics of each individual case.

To evaluate your case regarding BSNL VRS 2019, you may need the following documents: PAN Card, Aadhaar Card, Form 16, Income Tax Return acknowledgement, and Income Tax Intimation under Section 143(1). Additionally, ensure you have Form 26AS, the BSNL VRS sanction order, ex-gratia compensation tax documentation, and any salary slips if available. Bank statements reflecting VRS payments and a Vakalatnama (signed Letter of Authority) may also be required for income tax relief for BSNL retirees.