Understanding Severance Pay Taxation in India: Can You Recover the 30% Deduction?

Taxation of Severance Packages in India

I wanted to seek your advice on the taxation of severance packages in India. I work for an American MNC, and as part of the transition to Managed Services, the company is offering a severance package to impacted employees, where a flat 30% is deducted from the severance pay as tax.

As this involves a loss of employment for employees, I just wanted to understand: is there a way to recover the 30% tax-deducted amount from the Income Tax Department? Any suggestions on this matter would be greatly appreciated. Also, if there are any individuals or agencies who can help us with this process, please share the contact details for further discussion.

Regards, Prashanth

NO. It's a capital receipt and hence not taxable.

The Supreme Court in Kettlewell Bullen and Co. Ltd. (supra) and Oberoi Hotel Pvt. Ltd. v. CIT [1999] 236 ITR 903 (SC) observed, "If the receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the assessee continues to be in receipt of income from its other similar operations." There are a plethora of decisions to this effect, like CIT vs. Sharda Sinha (2015) Delhi HC.