BSNL VRS-2019: Exemption as Retrenchment Compensation (Section 10(10B))

The Dispute: Voluntary Retirement or Forced Retrenchment?

The Context: In 2019, Bharat Sanchar Nigam Limited (BSNL) launched a massive Voluntary Retirement Scheme (VRS) to reduce its workforce and curb heavy financial losses.
The Tax Conflict: * Revenue’s Stand: The Assessing Officer (AO) argued the scheme was “voluntary,” meaning the exemption should be capped at ₹5,00,000 under Section 10(10C).
- Assessee’s Stand: The employees argued that given the company’s financial distress and the “restructuring” nature of the move, the payment was effectively Retrenchment Compensation. They claimed full exemption (or up to the much higher limits) under Section 10(10B).

The Judicial Verdict

The Income Tax Appellate Tribunal (ITAT), Chandigarh (e.g., in Harish Kumar vs. ITO, 2025/2026) and other benches have ruled in favor of the Assessee, establishing a major precedent:

Substance over Nomenclature: The Tribunal held that while the scheme was labeled “Voluntary,” it was in substance a retrenchment scheme introduced as part of a Government-approved revival package for BSNL and MTNL.
Economic Compulsion: BSNL had incurred losses for years and struggled to pay salaries. The scheme was a strategic move to “shed extra employees” who were over 50 years old and less conversant with new technology.
Capital Receipt Nature: The compensation was recognized as a capital receipt for the loss of a source of income (loss of job), intended for the subsistence of the former employee.
Full Exemption: Since the scheme was approved by the Central Government and aimed at workforce reduction, it satisfied the requirements of the second proviso to Section 10(10B).

Key Takeaways for BSNL/MTNL Retirees

Beyond the ₹5 Lakh Cap: Unlike Section 10(10C), which is strictly capped at ₹5 lakhs, Section 10(10B) allows for a much larger exemption if the scheme is specifically approved by the Central Government.
Binding Precedents: Following the dismissal of several Special Leave Petitions (SLPs) by the Supreme Court, this issue has attained finality. Even if you received your compensation in installments, the exemption applies to the entire amount.
Condonation of Delay (March 2026 Update): For those who retired in FY 2019-20 and missed claiming this in their original returns, the deadline for filing a Section 119(2)(b) condonation of delay application to claim refunds is typically March 31, 2026.

IN THE ITAT AHMEDABAD BENCH ‘SMC’

Chhaganlal Bhimabhai Dangodara

Income-tax Officer^*

Ms. Suchitra Kamble, Judicial Member

IT Appeal Nos.2547 & 2548 (Ahd) of 2025
[Assessment years 2020-21 and 2021-22]

MARCH 17, 2026

Dr. Kumarbhai R. Pandya, Adv. for the Appellant. Smt. Mamta Singh, Sr. DR for the Respondent.

ORDER

1. The captioned two appeals have been filed by the Assessee against the orders passed by the learned Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi, vide orders dated 11.12.2025 & 03.12.2025, for the Assessment Years 2020-21 and 2021-22. Since the issues involved in both the appeals are common and identical, we extract the grounds of appeal raised in ITA No.2547/Ahd/2025 for Assessment Year 2020-21 for the purpose of adjudication. The decision rendered in the said appeal shall apply mutatis mutandis to the other appeal bearing ITA No. 2548/Ahd/2025 for Assessment Year 2021-22.

ITA No.2547/Ahd/2025 for AY 2020-21

2. The assessee has raised the following grounds of appeal:

This Appeal is filled to quash and set aside the Ground No.1 of the Order passed u/s 250 by CIT(A) in Appeal No. NFAC/2019-20/10411225 vide DIN No: ITBA/APL/S/250/2025-26/1083555352(1) & Order dated: 11/12/2025 and may be pleased to grant the full tax exemption for the Amount Rs.16,53,076/- received during A.Y.2020-2021 by an assessee as this amount is Retrenchment Compensation Received From Central Government Under the Scheme Approved By Central Government is fully exempted from Income Tax Under Section 10(108) of Income Tax Act, 1961. The compensation amount receipts in the hands of assessee as an employee of the BSNL, pursuant to the severance package, titled as BSNL Voluntary Retirement Scheme-2019 announced by the Department of Telecommunications(DoT), Central Government of India under total budgetary allocation approved by the Government is a special privilege/protection package granted to the employees of the BSNL and therefore, the Second Proviso of the Section 10(10B) of the Income Tax Act, 1961 are attracted and accordingly, the same shall not fall within the definition of income, while computing the total income of an assessee and income tax not to be deducted from the severance package paid as an employee of DOT and BSNL Combined Service.

In the present case the compensation received by an Assessee is towards loss of employment for the reason of employer so it would amount to Capital Receipt and hence, no Income Tax is payable.

That Ld.CIT(A) has misdirected himself in law, facts and circumstances of the case, the Ld.CIT(A) has rejected the Appeal Ground no.1 without considering the request of the Assessee who has asked to give an opportunity to submit Oral Evidences through VDEO CONFERENCE (VC) facility as per Income Tax Provisions. Ld.CIT(A) has not given an opportunity to submit oral evidences to Income Tax Department through VIDEO CONFERENCE (VC) facility to Assessee. So the Adverse Order of CIT(A) without giving opportunity to submit oral evidences to Income Tax Department through VIDEO CONFERENCE is null and void.

3. The assessee was employed with Bharat Sanchar Nigam Limited (BSNL), a Government of India enterprise. BSNL introduced the Voluntary Retirement Scheme (VRS)-2019, which was duly approved and implemented by the Government. The assessee opted for this scheme and received compensation as per the terms of the VRS. Under the scheme, the assessee received Rs. 16,53,076/- as retrenchment compensation from the Central Government under the budgetary allocation approved by the Government of India. This compensation was granted as a special protection package to BSNL employees. Therefore, the second proviso to section 10(10B) of the Income-tax Act, 1961 is applicable, and the said amount does not fall within the definition of income while computing the total income of the assessee. Accordingly, no tax is required to be deducted from the severance package received by the assessee as an employee of the DOT and BSNL combined service. Further, the grievance raised in the grounds of appeal does not arise from the order appealed against, as it is not a case where the assessee claimed exemption under section 10(10B) and the same was denied by the Assessing Officer.

4. Aggrieved by the orders of the Assessing Officer, the assessee carried the matter in appeal before the Ld.CIT(A), who dismissed the ground of appeal of the assessee

5. The Ld. Counsel for the assessee submitted that the amount of Rs. 16,53,076/- received during AY 2020-21 represents retrenchment compensation received from the Central Government under a scheme approved by the Government. Therefore, the said amount is fully exempt from tax under section 10(10B) of the Income-tax Act, 1961, and the assessee is entitled to full tax exemption on the same. The Ld. Counsel for the assessee also relied on the following judicial precedents:

Madras High Court W.P no.18566 of 2015, Hindustan Photo Film Workers’ Welfare Centre (CITU) v. Government of India (Madras)/[2018] 400 ITR 299 (Madras).

ITAT No. 42/Chd/2025 AY 2021-22 in the case of dated 30.05.2025/Harish Kumar v. ITO (Chandigarh – Trib.)

Salimmahmad Abdulrazak Hafeji v. Addl/JCIT(A)- 10, Mumbai dated 12.12.2025

Sham Lal v. Addl/JCIT(A)- 9, Mumbai dated 19.11.2025

Shreedhar v. Addl/JCIT(A) Mumbai dated 23.12.2025

ITA No.1472/Ahd/2014 in the case of Vishnu Mohan T Nair v. ITO (Ahmedabad – Trib.)dated 02.01.2018

6. After careful consideration of the grounds of appeal, it is noted that the identical issue was considered by Co-ordinate Bench of this Tribunal in ITA Nos. 2387 & 2388/Ahd/2025 for AYs 2020-21 & 202122 vide order dated 17.02.2026/Jayeshkumar Tulsidas Sutaria v. ITO (Ahmedabad – Trib.), wherein it was held as follows:

“.4. Aggrieved by the orders of the Assessing Officer, the assessee carried the matter in appeal before the Ld.CIT(A), who dismissed the appeal of the assessee

“…In the present case, the delay in filing of the appeal is almost four years which is an inordinate and huge delay. Moreover, as has been elaborately discussed above, the appellant has also failed to provide any reasonable ground that could assist the first appellate authority to draw sufficient cause for the inordinate delay of 1,396 days in filing of this appeal. The inordinate delay in the present case, if condoned, would make the term ”Sufficient cause” in section 249(3) of the Income Tax Act, 1961 hollow and meaningless.

20. In light of the facts of the case, provisions of the Income Tax Act, 1961 and judicial decisions in the matter as discussed above, I am constrained to conclude that the appellant has failed to submit any reasonable ground for condoning the inordinate delay of 1,396 days i.e almost four years in filing this appeal. Being bereft of any sufficient cause as envisaged in section 249(3) of the Act, the appeal cannot be admitted. Since the appeal is not maintainable, there is no need to adjudicate on the merits therein.

5. Aggrieved by the orders of the Ld.CIT(A, the assessee is in further appeal before us.

6. We have gone through the records and considering the merits of the case, we condoned the delay and proceed to adjudicate the issue.

6. The Ld. Counsel for the assessee submitted that due to lack of awareness of the legal provisions at the time of filing the return of income, the assessee inadvertently offered the compensation received under BSNL VRS-2019 to tax. Subsequently, based on the decision of the Hon’ble ITAT Chandigarh Bench in Harish Kumar v. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025 dated 30.05.2025), wherein compensation under the same BSNL VRS-2019 scheme was held to be exempt under section 10(10B), the assessee now seeks exemption of such compensation. We find that the assessee filed the claim before the Ld. CIT(A) and since the income of the assessee is not taxable, the assessee is eligible for the refund of the TDS.

7. In the result, both the appeals of the assessee are allowed.”

Since there is no change in the legal proposition and the factual matrix of the case, respectfully following the decision of the Co-ordinate Bench, the grounds raised by the assessee in the present appeal is hereby allowed.

7. In the result, both the appeals of the assessee are allowed.