Regarding eligibility of exemp.u/s.10(10C) by SBI VRS Optees
Querist :
Anonymous
(Querist) 29 November 2009
This query is : Resolved
Sir,
Pl. give me a latest judgement in respect of VRS taken under the exit option scheme of SBI. Kindly advice me whether the SBI Exit optees are eligible for exemption u/s. 10(10C) of I.T.Act or not.
Thanking you
C T Patra
A V Vishal
(Expert) 29 November 2009
The law would treat any payment received by the employee as taxable income, whether before or after retirement. However, it allows exemption for certain classes of receipts up to the specified limits as for leave travel concession under Sec. 10(5), commuted pension under Sec. 10(10A) and gratuity under Sec. 10(10). The querist is bound to have availed them.
Extra exemption was allowed under Sec. 10(10C) from May 1, 1993, but subject to the condition that the scheme described either as voluntary retirement scheme or voluntary separation scheme conforms to the guidelines prescribed under Rule 2BA. The Rule requires inter alia, not only minimum age of 40 years for the retirees and minimum service of ten years, but the scheme should be for overall reduction in the existing strength, with the undertaking on the part of the employer not to fill up posts vacant consequent on such retirement. Further, the scheme should be available to all employees without any restriction so as to merit extra deduction.
The scheme as enclosed by the querist does not satisfy all these conditions. The scheme under which the querist has retired is not for the purpose of reduction in overall staff strength. Acceptance of the application is again on the bank's sole discretion, which goes against another requirement of its being a voluntary exit in its true sense with the employer not having any option to retain the person, who opts for retirement accepting the offer under the VRS scheme. There is also a declaration in the scheme, that it does not comply with Sec. 10(10C) of the Act and that, therefore, there is no benefit of extra exemption.
Tax deduction in the querist's case will, therefore, appear to be in order. The benefit of spread over under Sec. 89 could still be claimed, though it could have been taken into consideration by the employer, if the assessee has asked for it and provided the necessary particulars. It can still be claimed by filing a return with such claim.
Raj Kumar Makkad
(Expert) 29 November 2009
Nothing to add in the detailed opinion of Vishal.
Vineet
(Expert) 01 December 2009
The opinion given by Mr Vishal is copied from an opinion provided by S Rajratnam in repect of querry raised by an SBI employee who availed Exit option meant for those who have been overlooked from promotion in The Hindu newspaper dated 20th November, 2006 and hence may or may not be applicable in this case.
It is not clear from the query whether VRS was opted under an approved VRS scheme of the Bank under rule 2BA of the Income Tax Rules which prescribe following requirements:
1. It will apply to an employee who has completed 10 years of service, or is aged over 40 years;
2.It applies to all employees (except Directors) including workers and executives of a company or of an authority or of a cooperative society;
3.The scheme of voluntary retirement or voluntary separation has been drawn to result in overall reduction in the number of the employees;
4.The vacancy caused by the voluntary retirement or voluntary separation is not to be filled up;
5.The retiring employee of a company shall not be employed in another company or concern belonging to the same management;
6.The amount on account of voluntary retirement or voluntary separation of the employee does not exceed the amount equal to three months' salary for each completed year of service, or salary at the time of retirement multiplied by the number of months of service left before the date of his retirement or superannuation.
In case of a public sector employee opting for voluntary retirement, the requirement that he should be at least 40 years of age or should have completed 10 years of service, would not apply if the proceeds are as per the scheme of voluntary separationframed by such public sector company.
There are approved VRS Schemes implemented by Public Sector Banks including SBI. I request the querrist to either check with Bank regarding status of scheme under which he opted for VRS or provide full details of the scheme here.
Without prejudice to above, you can still avail baenefit of relief u/s 89(1) treating the amount received as advance salary irrespective of the fact that exemption u/s 10(10C) is availed by you or not in view of Madras High Court Decision in the case of G V Venugopal (273 ITR 307).
