Hyderabad (Telangana) [India], April 8 : Telangana Jagruthi founder and president, Kalvakuntla Kavitha, has urged Union Finance Minister Nirmala Sitharaman to grant a one-time waiver of Income Tax on severance packages, citing massive layoffs in the private sector across the country.
In a letter to the Finance Minister, Kavitha raised concern over no "meaningful tax relief" for employees facing termination of jobs under the New Tax Regime, saying that immediate taxation leads to an inequitable situation.
The income tax on severance packages comes under Section 18(1)(a) of the Income Tax Act, 2025, under profits in lieu of salary.
She wrote, "I am writing to you with deep concern regarding the thousands of employees across our country who are facing sudden job losses in an increasingly volatile economic landscape. These are hardworking individuals who have contributed diligently to our nation's growth, remained steadfast in their tax compliance, and upheld their responsibilities as citizens."
"As you are aware, under the framework of the Income Tax Act, 2025, severance compensation is brought to tax under Section 18(1)(a) as 'profits in lieu of salary.' This ensures that severance receipts are taxed at the applicable slab rates. Even under the new tax regime, wherein exemptions have been rationalised for simplicity, the result is that employees facing termination find themselves with almost no avenues for meaningful tax relief at their most vulnerable hour," the Telangana Jagruthi chief added.
She flagged that a tax on severance packages reduces the net support available for the period of unemployment, and a lump-sum payout to employees may put them under a higher tax bracket.
"This creates a deeply inequitable situation. At the precise moment an individual loses their steady source of livelihood, the severance amount intended to be a vital financial cushion is significantly depleted by immediate taxation. This burden is particularly acute in cases of lump-sum payouts, where the receipt can push an individual into a higher tax bracket, further reducing the net support available to them during their period of unemployment," she wrote.
"Given the gravity of the current situation, I believe that incremental measures will not suffice. What is required is a decisive, one-time intervention. I strongly submit that a complete, temporary tax exemption be granted on severance compensation for individuals affected by layoffs for a defined period," the letter read.