Now Reading: ITAT Pune says Rs 65 lakh VRS payout is non-taxable capital receipt
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ITAT Pune says Rs 65 lakh VRS payout is non-taxable capital receipt
The Income Tax Appellate Tribunal (ITAT) in Pune has ruled that a Rs 65 lakh severance payout received by a former Pfizer Healthcare India employee under a voluntary retirement scheme is a…
The Income Tax Appellate Tribunal (ITAT) in Pune has ruled that a Rs 65 lakh severance payout received by a former Pfizer Healthcare India employee under a voluntary retirement scheme is a capital receipt, not taxable salary. The employee had wrongly declared the amount as advance salary in his tax return and claimed relief under Section 89, which the assessing officer rejected. The tribunal held that the payment was voluntary ex-gratia under a specially designed financial scheme, not a contractual termination payout, and therefore not subject to income tax.
The case involved Pfizer's Aurangabad plant closure in 2019, where the company offered a financial scheme for employees to voluntarily retire. The taxpayer received Rs 65 lakh comprising ex-gratia, early bid and group participation incentives, and notice period payouts. ITAT Pune followed its earlier decisions on similar cases under the same scheme, noting the cessation of employment was resignation, not retrenchment or termination by the company. The ruling reinforces that taxability depends on the legal nature of the payment, not its timing or label.
Indian Opinion Analysis
The tax treatment of VRS payouts hinges on the scheme's design rather than its label. Section 17(3) of the Income Tax Act makes all termination-linked payments taxable as salary unless specifically exempted under Section 10. The key exemption for VRS is Section 10(10C), which shields up to Rs 5 lakh from tax, provided the scheme meets conditions set by the CBDT. In this case, ITAT Pune ruled the Pfizer payout was a capital receipt because the scheme was framed as voluntary resignation, not employer-initiated termination, and the payment was ex-gratia without contractual obligation. The ruling is fact-specific: similar payouts under reorganisation or closure schemes may still face challenge if the agreement uses termination language. Taxpayers should note that voluntary retirement schemes must be structured to meet the conditions of Section 10(10C) for the exemption to apply, otherwise, any amount exceeding Rs 5 lakh remains fully taxable as salary under the default rule of Section 17(3).
Source: economictimes.indiatimes.com
This brief was synthesised by AI from the source linked above.
