After Microsoft announced its new voluntary exit programme on October 26, an uncomfortable question faces Indian employees. How much money will they actually be left with to tide them over during the period of uncertainty after leaving employment?
The programme reportedly covers around 60,000 employees in four countries: India, the United States, the UK and Canada. This is not a layoff figure. How many of these employees will eventually leave remains unknown.
The programme, according to Microsoft, is voluntary, and those accepting the offer have been promised financial support and career planning resources. However, Indian employees who choose to accept the offer will have to calculate how much money will be left after taxes.
Under Indian income-tax provisions, employees generally have to pay tax on compensation received upon termination of their employment, unless an exemption applies. Voluntary retirement arrangements may qualify for an exemption of up to Rs. 5 lakh, subject to prescribed conditions. Certain retrenchment payments may also qualify for an exemption, and tax relief may be available for some termination payments.
But these provisions are not the same as a general tax exemption for severance compensation. And calling a package a voluntary exit offer does not automatically make it eligible for relief either.
The government does provide limited tax exemptions and relief for certain termination payments. However, its policy still leaves many employees in the tax net. A performance bonus is a reward for work performed. Severance compensation, on the other hand, helps employees meet their personal expenses while they find their next job.
An exemption for genuine job-loss compensation is essential to protect employees who are suddenly laid off by their organisation. Compensation is meant to provide financial security. And the Indian government must ensure that this security is preserved.