The Hindu : Taxation of VRS amount received in instalments

Online edition of India's National Newspaper
Monday, Oct 27, 2003

Business

Business

Taxation of VRS amount received in instalments

Q: I am a VRS retiree of SAIL in June 1999 receiving compensation by way of deferred payment in 12 years. Thanks to the decision of the Calcutta High Court in SAIL DSP VR Employee's Association (1998) v Union of India (2003) 262 ITR 638 (Cal), gratuity received in instalments in aggregate will also qualify for deduction up to Rs. 5 lakhs. I have however the following further doubts:

(1) Am I not eligible for minimum exemption of Rs. 50,000 and Sec. 88 benefit every year till 2011. (2) Why Rs. 5 lakhs exemption should not be given in equal instalments in addition to minimum exemption of Rs. 50,000 and Sec. 88 rebate. (3) Finance Act 2003 is silent about working out exemption for instalment payments Clarification may be given in the light of the calculation sheet advised by Regional Paying Authority enclosed herewith.

A: Since the gratuity (VRS) amount is taxable to the extent it exceeds the exemption limit in these years can be spread over, which means that the exemption is also spread over. The proportionate taxable amount in every payment can be subject to basic exemption limit of Rs. 50,000 and rebates under Sec. 88. It is also possible to take the view that the exemption may be allowed to the extent unabsorbed in succeeding instalments till the exemption gets exhausted. Though the calculation sheet enclosed does not refer to basic exemption, it is bound to have been considered. Sec. 192 requires the income of each year to be taxed at the appropriate rate as though it is the only income of the year.

Refund of tax wrongly deducted has to be obtained only from the Income-tax Department. Recovery of tax should relate only to the taxable amount paid during the year subject to basic exemption and tax rebate. If the enclosed calculation asset differs from the above reasoning, it can be got corrected by the employer. If he does not do so, there is no alternative except to seek refund of excess tax from the Income-tax Department. The expectation that the law should provide for answer for all possible situations is not reasonable, where they cannot be expected. It has to be resolved in a reasonable manner. It follows that both the taxpayer and revenue should be reasonable.

S. Rajaratnam

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