TCS Layoffs: How Much Will You Really Take Home from Your Severance Package?

Tata Consultancy Services (TCS) recently announced layoffs for several senior employees, offering severance packages from six months to two years’ salary. While the payouts may seem generous, taxes can significantly reduce what you actually take home.

What Does Severance Pay Cover? 

Severance pay typically includes:

• Salary for the notice period
• Compensation for job loss
• Pay for unused leave

These payouts are meant to cushion the financial impact of a layoff, which is a business decision, not a reflection of your performance.

Tax Implications 

Severance is treated as “profits in lieu of salary” under Indian tax law, meaning most of it is taxable like regular income. Employers deduct TDS before releasing payments.

Some exemptions exist if clearly documented in your termination or relieving letter:

• Retrenchment compensation: Exempt up to ₹5 lakh
• Voluntary Retirement Scheme (VRS) payments: Exempt up to ₹5 lakh
• Gratuity and leave encashment: Exempt under specific rules

Without a clear breakup in official documents, the tax department may challenge exemptions.

Relief Options 

If you’re not under VRS, Section 89 allows spreading the tax burden of lump-sum payouts over previous years to reduce the impact. Note that this relief cannot be combined with VRS exemptions.

Practical Tips for Employees

• Verify the breakup of your severance package
• Check which components qualify for exemptions
• Plan for taxes to avoid surprises
• Maintain liquidity and insurance coverage during your transition

Read more: ITR Refund for FY25: Wrong Tax Deduction Claims Can Cost You 5x More.

Conclusion

 While severance pay offers temporary financial relief, taxes can shrink your payout. Understanding exemptions and planning ahead ensures your severance serves its purpose: giving you breathing space while you navigate your next career move.

 
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.