RBI Staff Get VRS definition wrong, face taxing time

MUMBAI: What''s in a name? A lot in the three-letter word VRS. By any other name, the benefits that come with a VRS will not be there. The early retirement programme of the RBI could be a rude awakening to millions of employees planning to hang up their boots.

Around 4,388 RBI employees who opted for an early retirement scheme recently had to fork out Rs 1.75 lakh each towards income tax since they were not entitled to benefits that usually accompany such schemes. The combined amount at stake for all employees is over Rs 75 crore.

The central bank on August 16, ''03, had introduced the Optional Early Retirement Scheme (OERS) for "all full-time regular employees". Employees who have completed 25 years of service and attained 50 years of age were eligible for the scheme.

The RBI had made it clear that the scheme was being introduced on an experimental basis "without a closing date" and the ex-gratia amount will be payable in "one lump sum subject to recovery of income tax to be borne by the employees".

Accordingly, 4,388 employees from different categories opted for the scheme. But they were shocked when the central bank deducted income tax on the full amount drawn by them as a "lump sum ex-gratia".

In other words, the customary exemption available for an amount up to Rs 5 lakh was missing. This, the employees allege, is against the provisions of the Income Tax Act.

According to Section 10 (10C) of the Income Tax Act, the compensation up to Rs 5 lakh is exempt from income tax if "received at the time of voluntary retirement scheme of termination". It further states that the compensation has to be in accordance "with the scheme of VRS or separation".

However, in this case, the entire amount received by employees has been considered for the computation of income tax. "Normally in such schemes the income tax is not levied up to Rs 5 lakh," a peeved employee said.

When contacted, the RBI spokesperson defended its action saying the programme "was not a VRS". "We had not introduced the VRS. Ours was an Optional Early Retirement Scheme, which is distinctly different from a typical VRS," the spokesperson said.

Asked as to how the RBI scheme was different from other schemes, the apex bank said, “We didn''t pay any lump sum amount. Whatever we paid was a salary for the balance period of service along with usual benefits such as provident fund, dearness allowance and gratuity."

The RBI spokesperson also clarified that the scheme was introduced at the behest of employees. Interestingly, the RBI circular dated August 11, ‘03, clearly states that the "ex-gratia amount will be payable in a lump sum".

Meanwhile, several affected employees have drawn the attention of leading Parliamentarians on the matter.