Do you need to pay tax on severance payment after job loss?
One way in which you may get tax relief on the severance package is when it is paid under voluntary retirement scheme (VRS), according to Section 10(10C) of the Income Tax Act. The section allows one-time exemption to employees on the proceeds received on voluntary retirement or separation.
Layoffs in startups and tech companies are making headlines everyday. Most companies handing out pink slips are also giving 2-3 months of severance pay to affected employees. Tax laws in India allow tax exemption on such compensation under certain conditions, but the scope is limited.