arrear of VRS taxable if 5 lakh not exhausted earlier year

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

29 July 2010 Sir,
Is Exemption u/s 10(10C) is allowable on enhanced VRS compensation receivable due to wage revision. In the case of some employees 5 lakh exemption has not fully granted at the time voluntary retirement being VRS compensation less than 5 lkah. Now we are going to Pay enhanced VRS compensation due wage revision. So can we grant exemption for the balance amount for computing TDS. eg. at the time of Voluntaty retirement 4 lakh exmption has granted. Now we are paying 3 lakhs arrear due to wage revision . Can we grant exemption of ONE lakh (5-4) under sec.10(10C ) for computing TDS to be made. Its very important because if the TDS is lesser then we cannot recover the balance tds amount. I require an expert opinion on this.

CA. Pradeep Nayak

CA. Pradeep Nayak (Expert)
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29 July 2010 Proviso to Sec 10(10C) states that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year.

That means an assessee can avail benefit u/s 10(10C) only once, irrespective of whether he utilises the entire Rs. 5 lakh limit or not. As such, now the employees will not get any benefit u/s 10(10C)on enhanced VRS compensation even though the entire exemption limit of Rs. 5 lakh was not fully utilised in the year when VRS compensation was first paid.

It is advisable to deduct tax on the entire enhanced compensation amount.

Querist : Anonymous

Querist : Anonymous (Querist)

30 July 2010 In our case VRS compensation is not received from more than one employer. The following relates to a case law.

“ Benefit payable under VRS is benefit in lieu of salary and is chargeable/exempt on cessation of service, even though payment is spread over a number of years and would not be hit by second proviso to section 10(10C) - SAIL DSP VR Employees Association 1998 v. Union of India [2003] 128 Taxman 704/262 ITR 638 (Cal.).”

So can we allow exemption to the balance amount.

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CA. Pradeep Nayak

CA. Pradeep Nayak (Expert)
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01 August 2010 The facts in the case SAIL DSP VR Employees Association 1998 v. Union of India [2003] 128 Taxman 704/262 ITR 638 (Cal.) are completely different from the case mentioned above.

In case SAIL DSP VR Employees, the compensation agreed to be paid at the time of separation was paid over a period of time and the benefit u/s 10(10C) cannot be denied only because the payment was not made in lumpsum.

In the case mentioned above, the payment has been made in lumpsum to the employees & benefit already claimed u/s 10(10C). What is being paid now is the enhanced compensation based on wage revision. Is this enhanced compensation which is being paid now was part of the VRS settlement which was concluded earlier? If the answer is NO, then the benefit u/s 10(10C) is not available even though the entire limit of Rs. 5 lakh was not utilised earlier.

Querist : Anonymous

Querist : Anonymous (Querist)

01 August 2010 Enhanced compensation which is being paid now is part of the VRS settlement which was concluded earlier because the Govt order for revision came only on 31/03/2010 eventhough they are eligible for higher VRS compensation at the time of separation. Entire 5 lakh has not claimed being the compensation less than 5 lakh. so if this is part of settlement can we give exemption for the balance for TDS computation.