The BSNL VRS 2019 tax exemption<\/strong> controversy has received an important ruling from the Income Tax Appellate Tribunal, Nagpur Bench that could have significant refund implications for retired BSNL employees who paid income tax on compensation received under the BSNL Voluntary Retirement Scheme, 2019.<\/p>\n\n\n\n In a consolidated order covering 40 appeals<\/strong>, the ITAT Nagpur held that compensation received by the concerned BSNL employees under BSNL VRS-2019<\/strong> was in substance retrenchment compensation covered by Section 10(10B)<\/strong> of the Income-tax Act, 1961.<\/p>\n\n\n\n The Tribunal held that the payment should not merely be treated as ordinary voluntary retirement compensation restricted to the \u20b95 lakh exemption available under Section 10(10C)<\/strong>.<\/p>\n\n\n\n It consequently allowed the appeals and directed the employees to submit revised computations claiming exemption under Section 10(10B). The Revenue authorities were directed to verify the computations and BSNL scheme documents and grant the consequential income-tax refund<\/strong>, wherever eligible.<\/p>\n\n\n\n For thousands of former BSNL employees who opted for VRS-2019 and paid tax on compensation exceeding \u20b95 lakh, the ruling deserves careful examination.<\/p>\n\n\n\n Case:<\/strong> Yogesh Shyamsunder Maheshwari, Mumbai v. DCIT\/ACIT, Circle-3, Nagpur & Ors.<\/em><\/p>\n\n\n\n Appeals:<\/strong> ITA Nos. 220 & 221\/NAG\/2026 and 38 other cases<\/p>\n\n\n\n Bench:<\/strong> Income Tax Appellate Tribunal, Nagpur Bench<\/p>\n\n\n\n Date of Order:<\/strong> 14 July 2026<\/p>\n\n\n\n Number of Appeals:<\/strong> 40<\/p>\n\n\n\n Relevant Sections:<\/strong> Section 10(10B) and Section 10(10C) of the Income-tax Act, 1961<\/p>\n\n\n\n Central Question:<\/strong> Whether compensation received by BSNL employees under BSNL VRS-2019 should be taxed as ordinary voluntary retirement compensation with a \u20b95 lakh exemption ceiling under Section 10(10C), or treated as retrenchment compensation eligible for exemption under Section 10(10B).<\/p>\n\n\n\n Result:<\/strong> Appeals allowed. The assessees were permitted to furnish revised computations claiming Section 10(10B) exemption, and consequential refunds were directed to be granted after verification.<\/p>\n\n\n\n BSNL introduced the Voluntary Retirement Scheme, 2019<\/strong> following the Government of India’s revival plan for BSNL and MTNL.<\/p>\n\n\n\n The Union Cabinet approved the revival proposal on 23 October 2019. A central component of that package was reduction of employee costs through a VRS for employees aged 50 years and above.<\/p>\n\n\n\n The Government’s official announcement stated that the revival package involved:<\/p>\n\n\n\n The Government’s official details of the BSNL and MTNL revival plan<\/a> therefore became relevant in determining the real character of the compensation paid to employees.<\/p>\n\n\n\n The crucial question before the Tribunal was:<\/p>\n\n\n\n The ITAT’s answer was no<\/strong>.<\/p>\n\n\n\n According to the Tribunal, the real nature, background and objective of the scheme had to be examined instead of relying merely upon its nomenclature.<\/p>\n\n\n\n The entire controversy revolves around the distinction between retrenchment compensation under Section 10(10B)<\/strong> and voluntary retirement compensation under Section 10(10C)<\/strong>.<\/p>\n\n\n\n Section 10(10C) provides exemption for qualifying compensation received by an employee on voluntary retirement or voluntary separation.<\/p>\n\n\n\n The exemption is generally subject to a maximum ceiling of \u20b95 lakh<\/strong>, together with the conditions prescribed under the Income-tax Rules.<\/p>\n\n\n\n The Income Tax Department’s official guidance confirms this general \u20b95 lakh ceiling for eligible voluntary retirement compensation.<\/p>\n\n\n\n As a result, many BSNL employees originally claimed:<\/p>\n\n\n\n \u20b95 lakh as exempt under Section 10(10C)<\/strong><\/p>\n\n\n\n and offered the remaining VRS compensation to income tax.<\/p>\n\n\n\n Section 10(10B) deals with compensation received at the time of retrenchment.<\/p>\n\n\n\n Ordinarily, retrenchment compensation is also subject to prescribed statutory limits.<\/p>\n\n\n\n However, Section 10(10B) contains an important proviso where compensation is received in accordance with a scheme approved by the Central Government having regard to the need for extending special protection to employees\/workmen and other relevant circumstances<\/strong>.<\/p>\n\n\n\n The statutory provision can be referred to on the Income Tax Department’s official Section 10 page<\/a>.<\/p>\n\n\n\n This statutory distinction became critical in the BSNL cases.<\/p>\n\n\n\n One of the strongest aspects of the ruling is the Tribunal’s approach to the expression \u201cVoluntary Retirement Scheme.\u201d<\/strong><\/p>\n\n\n\n The Revenue argued that employees themselves opted for the scheme and therefore the amounts should be treated merely as voluntary retirement compensation.<\/p>\n\n\n\n The Tribunal did not accept the nomenclature as conclusive.<\/p>\n\n\n\n It examined the circumstances surrounding the scheme, including:<\/p>\n\n\n\n The Tribunal therefore treated the compensation according to its real character and economic substance<\/strong>, rather than merely the title used for the scheme.<\/p>\n\n\n\n After considering the Government revival scheme and earlier judicial precedents, the Nagpur Bench held that compensation received by the assessees under BSNL VRS-2019 was in the nature of retrenchment compensation<\/strong>.<\/p>\n\n\n\n Accordingly, it held that the compensation was covered by Section 10(10B)<\/strong>.<\/p>\n\n\n\n The Tribunal treated the receipt as a capital receipt exempt from tax<\/strong> in the circumstances considered by it and did not restrict the employees to the \u20b95 lakh exemption applicable under Section 10(10C).<\/p>\n\n\n\n This finding is particularly significant for former employees who received substantial VRS compensation.<\/p>\n\n\n\n For a broader explanation of exemptions available on retirement benefits, including retrenchment compensation and VRS, readers may refer to our detailed guide on salary tax planning and retirement benefit exemptions<\/a>.<\/p>\n\n\n\n No. This distinction is important.<\/strong><\/p>\n\n\n\n It would be legally incorrect to state that every payment described as retrenchment compensation automatically enjoys unlimited exemption under Section 10(10B).<\/p>\n\n\n\n Ordinarily, Section 10(10B) contains prescribed limits.<\/p>\n\n\n\n The significance of the BSNL VRS-2019 ruling arises from the Tribunal’s examination of the particular Government-approved revival scheme<\/strong> and the statutory exception concerning qualifying schemes receiving Central Government approval.<\/p>\n\n\n\n Therefore:<\/p>\n\n\n\n The ITAT ruling should be understood as a decision concerning BSNL VRS-2019 in its specific Government-approved revival context\u2014not as a blanket exemption for every VRS payment made by every employer.<\/strong><\/p>\n<\/blockquote>\n\n\n\n This qualification is particularly important while advising employees of other PSUs or private-sector companies.<\/p>\n\n\n\n When BSNL VRS-2019 payments were originally received, many employees treated them as ordinary voluntary retirement compensation.<\/p>\n\n\n\n Accordingly, they generally:<\/p>\n\n\n\n Tax may also have been deducted at source by BSNL.<\/p>\n\n\n\n The question of claiming exemption under Section 10(10B) emerged more prominently after favourable decisions involving similarly placed BSNL employees.<\/p>\n\n\n\n This explains why several assessees before the Nagpur Bench had not claimed Section 10(10B) in their original return of income<\/strong>.<\/p>\n\n\n\n This was another important issue before the Tribunal.<\/p>\n\n\n\n The Revenue argued in several cases that the exemption could not be granted because the claim had not been made through an original or revised income-tax return.<\/p>\n\n\n\n The ITAT rejected an overly restrictive approach.<\/p>\n\n\n\n It relied upon established judicial principles holding that appellate authorities can consider a legitimate legal claim where doing so is necessary to determine the correct taxable income<\/strong>.<\/p>\n\n\n\n One of the principal authorities was:<\/p>\n\n\n\n Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC)<\/strong><\/p>\n\n\n\n The Supreme Court recognised the power of the appellate authority to entertain an additional ground in appropriate circumstances.<\/p>\n\n\n\n The Tribunal also relied on:<\/p>\n\n\n\n CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC)<\/strong><\/p>\n\n\n\n and subsequent High Court decisions supporting the principle that legitimate tax relief should not necessarily fail merely because the taxpayer omitted the claim while originally filing the return.<\/p>\n\n\n\n For taxpayers already involved in assessment or appellate proceedings, professional handling of income tax appeals and tax litigation<\/a> becomes particularly important because the correct remedy depends upon the procedural stage of the case.<\/p>\n\n\n\n The Nagpur Bench considered several earlier authorities, including:<\/p>\n\n\n\n These precedents were relevant both to:<\/p>\n\n\n\n the character of BSNL VRS compensation<\/strong>, and<\/p>\n\n\n\n the power of appellate authorities to entertain a legitimate exemption claim that had not been made in the original return.<\/strong><\/p>\n\n\n\n The Nagpur Bench ultimately allowed the batch of appeals.<\/p>\n\n\n\n It set aside the adverse findings of the respective CIT(A)s and accepted the claim for exemption under Section 10(10B).<\/p>\n\n\n\n Importantly, the Tribunal did not merely decide the legal principle.<\/p>\n\n\n\n It also laid down the procedure to give effect to its decision.<\/p>\n\n\n\n The employees were directed to submit revised computations of income<\/strong> before their respective Assessing Officers.<\/p>\n\n\n\n The Revenue authorities were then directed to:<\/p>\n\n\n\n This makes the decision particularly relevant from a practical refund perspective.<\/p>\n\n\n\n Former BSNL employees should consider reviewing their tax records if they:<\/p>\n\n\n\n A professional review should begin with the original return, Form 16 and tax computation.<\/p>\n\n\n\n For general return reconciliation and tax reporting, taxpayers may also refer to our income tax return filing and refund review services<\/a>.<\/p>\n\n\n\n Suppose a BSNL employee received:<\/p>\n\n\n\n Total eligible VRS compensation:<\/strong> \u20b920 lakh<\/p>\n\n\n\n and originally claimed:<\/p>\n\n\n\n Section 10(10C) exemption:<\/strong> \u20b95 lakh<\/p>\n\n\n\n The remaining \u20b915 lakh<\/strong> may have been offered to tax.<\/p>\n\n\n\n If the employee’s facts are ultimately covered by the Section 10(10B) treatment accepted by the Tribunal, the taxable income could reduce substantially.<\/p>\n\n\n\n That could result in:<\/p>\n\n\n\n However, the actual refund cannot be determined merely from the amount of VRS compensation. Tax slab, other income, deductions, TDS, assessment history and the available procedural remedy must also be examined.<\/p>\n\n\n\n No.<\/strong><\/p>\n\n\n\n This ITAT order is highly favourable, but it should not be treated as an automatic refund sanction for every former BSNL employee.<\/p>\n\n\n\n Refund eligibility will depend upon factors such as:<\/p>\n\n\n\n Former BSNL employees should also be cautious about filing an updated return or ITR-U<\/strong> merely to claim this exemption.<\/p>\n\n\n\n An updated return under Section 139(8A) is generally not available where the effect would be to:<\/p>\n\n\n\n Therefore, the appropriate remedy should be determined from the procedural status of the employee’s case rather than assuming that an ITR-U can be filed.<\/p>\n\n\n\n For current return-filing time limits and the distinction between revised and updated returns, refer to our detailed guide on ITR filing deadlines, revised returns and ITR-U rules<\/a>.<\/p>\n\n\n\n A BSNL retiree considering a BSNL VRS income tax refund<\/strong> should generally collect:<\/p>\n\n\n\n These documents allow the amount originally taxed and the potential Section 10(10B) relief to be quantified correctly.<\/p>\n\n\n\n Before initiating any claim, the employee should answer five questions:<\/p>\n\n\n\n The Tribunal ruling is tied to the particular scheme.<\/p>\n\n\n\n Check the figure from BSNL’s official compensation statement and Form 16.<\/p>\n\n\n\n Identify whether only \u20b95 lakh was claimed under Section 10(10C).<\/p>\n\n\n\n Reconstruct the tax computation to determine whether a refund would arise.<\/p>\n\n\n\n This is often the most important question.<\/p>\n\n\n\n A good exemption claim can still fail procedurally if it is pursued through the wrong statutory route.<\/p>\n\n\n\n The Nagpur ruling itself demonstrates that the absence of a Section 10(10B) claim in the original return did not necessarily prevent appellate authorities from examining the correct tax treatment.<\/p>\n\n\n\n Where an adverse intimation or assessment already exists, the appropriate course may therefore involve appellate or other statutory proceedings rather than simply attempting another return filing.<\/p>\n\n\n\nBSNL VRS 2019 Tax Exemption \u2013 Case at a Glance<\/h2>\n\n\n\n
Why the BSNL VRS 2019 Tax Exemption Issue Arose<\/h2>\n\n\n\n
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Does calling a scheme \u201cVRS\u201d automatically make the compensation taxable under Section 10(10C)?<\/h3>\n\n\n\n
Section 10(10B) vs Section 10(10C): Why the Difference Is Crucial<\/h2>\n\n\n\n
Section 10(10C): Voluntary Retirement Compensation<\/h3>\n\n\n\n
Section 10(10B): Retrenchment Compensation<\/h3>\n\n\n\n
ITAT Nagpur: Substance of BSNL VRS-2019 Matters More Than Its Name<\/h2>\n\n\n\n
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ITAT Holds BSNL VRS-2019 Compensation Covered by Section 10(10B)<\/h2>\n\n\n\n
Does Section 10(10B) Always Give Unlimited Exemption?<\/h2>\n\n\n\n
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Why Many BSNL Employees Had Paid Tax Earlier<\/h2>\n\n\n\n
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Can a New Section 10(10B) Claim Be Made During Appeal?<\/h2>\n\n\n\n
Important Judicial Precedents Relied Upon<\/h2>\n\n\n\n
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Major Relief: ITAT Allows All 40 Appeals<\/h2>\n\n\n\n
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BSNL VRS Refund: Who Should Review Their Tax Position?<\/h1>\n\n\n\n
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Simple Example: Why the Tax Impact Could Be Significant<\/h2>\n\n\n\n
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Can Every BSNL Retired Employee Automatically Claim a Refund?<\/h1>\n\n\n\n
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Important: ITR-U Is Generally Not a Refund Route<\/h2>\n\n\n\n
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Documents BSNL VRS Employees Should Keep Ready<\/h2>\n\n\n\n
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BSNL VRS Refund Checklist<\/h1>\n\n\n\n
1. Was retirement specifically under BSNL VRS-2019?<\/h3>\n\n\n\n
2. How much compensation was received?<\/h3>\n\n\n\n
3. How much exemption was originally claimed?<\/h3>\n\n\n\n
4. How much additional tax was actually paid?<\/h3>\n\n\n\n
5. What remedy is legally available today?<\/h3>\n\n\n\n
Why Appellate Remedy May Be Important<\/h2>\n\n\n\n