A recent tax tribunal order offers relief to thousands of Government employees who have opted for voluntary retirement.

No more tedious trips to the tax man - at least not for the Government employees who have opted for VRS. In a case involving retired RBI employees, the Mumbai bench of the Income Tax Appellate Tribunal, or ITAT has ruled that employees taking VRS are entitled to tax exemptions.

The ITAT has held that of the total sum a retiring employee receives - Rs 500000 - will be automatically exempt under the Income Tax Act. That is not all! The amount above Rs 500000 will be taxed in a stagerred manner. ITAT has rules that the amount will be taxed equally over a period of three years, and not at one go as the tax department wanted.

Jitendra Sanghavi, Chartered Accountant says, "This will have a big impact as the cost of litigation for salaried employees is very high. They will be spared of unnecessary litigation which is to high these days."

As per the Income Tax Act, the VRS amount is eligible for tax exemption only if the employee has served either 10 years or completed 40 years of age. But that is possible only if the job stays vacant.

The tax department had denied over 200 RBI employees the exemption on grounds that there was no undertaking from RBI to keep the VRS jobs vacant. But the ITAT said despite no undertaking, it was obvious that RBI was unlikely to fill the positions as it had reduced over 8000 jobs in six years. This order wil not only benefit 200 RBI  employees but also set a precedent for VRS tax exemptions across the country.