CBDT has clarified that compensation paid to employees under the BSNL and MTNL Voluntary Retirement Scheme 2019 is exempt under Section 10(10C) of the Income-tax Act, 1961, which covers public sector undertaking VRS payouts, and cannot be claimed under Section 10(10B), which applies to retrenchment compensation. The distinction matters because each section carries different exemption conditions, eligibility criteria, and tax treatment, affecting thousands of PSU employees who opted for early retirement under the 2019 scheme.

This CBDT clarification resolves a classification dispute that directly affects the tax liability of BSNL and MTNL employees who accepted VRS in 2019. Understanding why the distinction matters requires knowing what each section covers.

Section 10(10B) exempts retrenchment compensation paid under the Industrial Disputes Act, 1947. It applies when an employer terminates an employee involuntarily — the employee did not choose to leave. The exemption ceiling is the lower of actual compensation, three months' average salary per completed year of service, or ₹5 lakh.

Section 10(10C) exempts VRS compensation received by employees of specified public sector companies, statutory corporations, and other entities notified by the government. The exemption is capped at ₹5 lakh over a lifetime across all employers. Crucially, it applies only when the employee voluntarily opts for retirement under a scheme that meets prescribed conditions (the employee must be 40+ years old or have completed 10 years of service; the scheme cannot result in replacement of the post).

BSNL and MTNL are Central Government PSUs. Their 2019 VRS was a voluntary scheme, not retrenchment. CBDT's clarification therefore correctly routes the exemption to 10(10C). The practical implication: employees cannot stack both exemptions, and the ₹5 lakh lifetime cap under 10(10C) applies. Any excess over ₹5 lakh remains taxable as salary income. For exam purposes, the key takeaway is the structural difference between these two exemption heads and the nature of PSU employment that triggers 10(10C).