In a significant ruling offering relief to retired employees, the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has held that compensation received under the BSNL Voluntary Retirement Scheme (VRS) qualifies for tax exemption under Section 10(10B) of the Income Tax Act, subject to fulfillment of statutory conditions.
The decision came in favour of former BSNL employee Jashvantbhai Ashabhai Patel, who sought exemption on the compensation amount received under the BSNL VRS-2019 scheme.
Background of the Case
The appeal was filed before the ITAT Ahmedabad challenging the order passed by the Commissioner of Income Tax (Appeals). The central issue before the Tribunal was whether compensation received under the BSNL Voluntary Retirement Scheme could be exempted from income tax under Section 10(10B) of the Income Tax Act.
The assessee had received VRS compensation amounting to approximately ₹12.14 lakh. At the time of filing his income tax return, he voluntarily offered the entire compensation amount to tax and did not claim exemption under Section 10(10B).
Further, neither the original return nor the revised return contained any exemption claim. The assessee also did not challenge the intimation issued under Section 143(1) of the Income Tax Act.
However, circumstances changed after the assessee became aware of a later judicial development concerning the tax treatment of BSNL VRS compensation.
Reliance on Earlier ITAT Chandigarh Decision
During the proceedings, the assessee argued that he learned about his eligibility for exemption only after the Chandigarh Bench of the ITAT delivered its ruling in Harish Kumar v. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025 dated 30 May 2025).
In that case, the Chandigarh Bench had held that compensation received under the BSNL VRS-2019 scheme was eligible for exemption under Section 10(10B), provided the requirements prescribed under Rule 2BA were satisfied.
Relying on that precedent, the assessee contended that he should also receive the same benefit.
Tribunal’s Observations
The Ahmedabad Bench comprising Judicial Member Sanjay Garg and Accountant Member Narendra Prasad Sinha examined the facts and legal position.
The Tribunal took note of the assessee’s submission that the exemption was not claimed earlier because he was unaware of the legal position at the relevant time.
Importantly, the Bench observed that the controversy was no longer res integra, as coordinate benches had already addressed the issue and recognized exemption eligibility for compensation received under BSNL’s VRS scheme.
The Tribunal recorded that there had been no material change either in the factual circumstances of the case or in the governing legal principles.
Accordingly, it followed the earlier judicial precedents and concluded that the taxpayer deserved the benefit of exemption.
The Bench ultimately ruled in favour of the assessee and allowed the appeal.
Understanding Section 10(10B) of the Income Tax Act
Section 10(10B) grants tax exemption in respect of eligible retrenchment compensation received by employees, subject to specified conditions and limits under the Income Tax Rules.
The exemption is not automatic and depends upon compliance with the applicable legal requirements, including conditions prescribed under Rule 2BA where relevant.
This ruling reiterates that eligible compensation received under structured retirement or retrenchment schemes may qualify for tax relief if statutory conditions are met.
Why This Decision Matters
The judgment is particularly relevant for former BSNL employees and similarly placed taxpayers who opted for the BSNL VRS-2019 scheme.
Many employees may have offered such compensation to tax without claiming available exemptions due to lack of awareness or absence of clarity in the legal position at the time of filing returns.
The ITAT’s decision reinforces the principle that where an issue is settled through judicial precedent and facts remain identical, similarly situated taxpayers can seek relief.
At a broader level, the ruling highlights the importance of staying informed about judicial developments in tax law, especially where exemptions and deductions are involved.
Case Details
Case Number: ITA No. 1145/Ahd/2026
Forum: Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench
For Appellant: Parin Shah, Authorised Representative
For Respondent: Mamta Singh, Senior Departmental Representative
This ruling may serve as an important reference for taxpayers evaluating the taxability of compensation received under voluntary retirement schemes and the scope of exemption available under Section 10(10B) of the Income Tax Act.
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