CBDT Clarifies BSNL, MTNL VRS-2019 Compensation Taxable Under Section 10(10C), Not 10(10B):

The Central Board of Direct Taxes (CBDT), vide a representation dated October 22, 2026, has clarified that ex-gratia compensation received by retired employees under the Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) Voluntary Retirement Scheme, 2019 (VRS-2019), will be governed by Section 10(10C) of the Income-tax Act, 1961, and not Section 10(10B). This clarification has been issued following the receipt of several representations from employees and associations seeking tax exemption on the compensation received under these schemes.

The board has examined the matter in collaboration with the Department of Telecommunications and observed that the BSNL and MTNL VRS-2019 were voluntary retirement schemes. Eligible employees had voluntarily opted for retirement by submitting option forms within the prescribed period. The compensation was calculated based on the employee’s qualifying service and the remaining period until superannuation, broadly following the Department of Public Enterprises’ guidelines dated July 20, 2018. Employees opting for the schemes were also entitled to applicable pensionary and other retirement benefits.

The Board further distinguished these schemes from the case of the Hindustan Photo Film Workers Welfare Centre, decided by the Madras High Court on March 17, 2017. In that case, the Court treated the compensation as a severance package rather than a voluntary retirement benefit because the company was being wound up and the nature of the package was disputed.

Accordingly, the CBDT has clarified that compensation received under BSNL and MTNL VRS-2019 falls under Section 10(10C) and cannot be claimed as exempt under Section 10(10B). The Board has directed tax authorities to communicate this position to departmental representatives, standing counsels, tribunals and courts. Applications seeking condonation for revising income tax returns (ITRs) to claim exemption under Section 10(10B), read with Section 119 of the Income-tax Act, 1961, or Section 239 of the Income-tax Act, 2025, should be dealt with accordingly.