Comprehensive Analysis: ITAT Bangalore Grants Full Tax Exemption Under Section 10(10B) for BSNL VRS 2019 Compensation
The intersection of employment severance and taxation often creates complex compliance challenges for an assessee. A prominent example of this complexity is the tax treatment of compensation received under the BSNL Voluntary Retirement Scheme, 2019. In a highly significant judicial determination, the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, recently adjudicated on this very issue in the case of Vinaya Vinayak Apte Vs ITO.
Through its order dated 31/08/2026 (Appeal Numbers ITA 2319 and 2320/BANG/2026), the Tribunal clarified that ex-gratia payments received under the BSNL VRS, 2019 scheme qualify as retrenchment compensation. Consequently, such receipts are eligible for complete exemption under Section 10(10B) of the Income Tax Act 1961, overriding the restricted limit of ₹5 lakh prescribed under Section 10(10C). This article provides an in-depth summary and legal analysis of the Tribunal's ruling, the statutory provisions involved, and the broader implications for similarly situated individuals.
Background of the Dispute
The genesis of the controversy lies in the macroeconomic restructuring of state-owned telecommunication enterprises. To financially rehabilitate and streamline the operations of Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), the Union Cabinet sanctioned a comprehensive revival strategy. This strategy was officially communicated via an Office Memorandum dated 29 October 2019, issued by the Department of Telecommunications, Government of India.
A central pillar of this revival package was a massive workforce reduction initiative, effectuated through the BSNL Voluntary Retirement Scheme, 2019. The scheme targeted employees aged 50 years and above, offering them a specifically calculated ex-gratia compensation in exchange for their premature separation from service.
The Assessee's Predicament
The assessee in the present matter, a former employee of BSNL, opted for the aforementioned severance scheme. Upon separation, the assessee received substantial ex-gratia payouts across two distinct financial periods:
- Assessment Year 2020-21: The assessee received a compensation amount of ₹9,13,450.
- Assessment Year 2021-22: The assessee received a further compensation amount of ₹20,04,922.
Navigating the complexities of the Income Tax Act 1961, the assessee relied on professional counsel which ultimately proved to be legally inaccurate. For the Assessment Year 2020-21, the assessee restricted the tax-free claim to a mere ₹5 lakh, filing the return under the purview of Section 10(10C). Compounding the error, for the Assessment Year 2021-22, the assessee declared the entire receipt of ₹20,04,922 as fully taxable income.
The revenue authorities processed both income tax returns routinely via automated intimations under Section 143(1) of the Income Tax Act 1961, accepting the income computations exactly as they were originally declared by the assessee.