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This has reference to the article ‘Taxability of VRS compensation’ (Business Line, July 19 2008), wherein it is stated that the interpretation of the advisor and its acceptance by the employer resulted in the denial of exemption of Rs 5 lakh from income-tax to employees who opted for VRS. Incidentally, in 2000, the Finance Ministry had itself elaborated on such an exemption while promoting the VRS scheme in public sector banks.

One of the conditions for such exemption in the Act is that the vacancy caused by voluntary retirement is not to be filled up. This is open to various interpretations, that is, whether the vacancy relates to the particular post the VRS optee was holding or a mere number in the vacancies in that cadre.

Again, filling up the vacant posts subsequent to the VRS scheme depending on business exigencies of the concern is a decision of the employer for which the VRS optee should not be denied exemption given under a specific provision. In this context, the Finance Ministry’s view as articulated by it in 2000 should prevail in the absence of a specific amendment to the Act.

P. E. Muthu Mumbai

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