Layoffs – Kavitha Calls for Tax Relief on Severance Pay Amid Job Losses
Layoffs – A growing wave of job losses in the private sector has prompted Telangana Jagruthi founder and president Kalvakuntla Kavitha to seek urgent intervention from the Union government. In a letter addressed to Finance Minister Nirmala Sitharaman, she appealed for a one-time exemption from income tax on severance packages, arguing that current tax provisions are placing an additional burden on individuals already facing financial uncertainty.
Concerns Over Existing Tax Framework
Kavitha pointed out that under the Income Tax Act, 2025, severance compensation is treated as income under the category of “profits in lieu of salary,” making it taxable according to applicable slab rates. She highlighted that the New Tax Regime, while designed to simplify taxation by removing exemptions, does not offer meaningful relief for individuals who lose their jobs unexpectedly.
According to her, this approach fails to account for the vulnerable situation of employees who are suddenly left without a steady source of income. She stressed that taxation at such a time reduces the effectiveness of severance pay, which is intended to act as a financial cushion during unemployment.
Impact on Employees Facing Job Loss
The letter emphasized the challenges faced by thousands of workers who have recently lost their jobs in an uncertain economic environment. Kavitha described these individuals as responsible taxpayers who have consistently contributed to national growth and complied with financial regulations.
She noted that taxing severance payouts immediately can significantly reduce the amount available to employees for managing their expenses during job transitions. This issue becomes more pronounced in cases where the payout is made as a lump sum, as it may push individuals into a higher tax bracket.
As a result, workers may end up paying a larger portion of their compensation as tax, leaving them with less financial support at a time when they need it the most.
Call for Temporary Tax Exemption
Highlighting the seriousness of the situation, Kavitha argued that small or gradual policy adjustments would not be sufficient. Instead, she proposed a decisive, one-time measure in the form of a temporary tax exemption on severance compensation for those affected by layoffs.
She suggested that such an exemption should be applied for a defined period, allowing affected employees to retain the full benefit of their severance packages. This, she said, would provide much-needed financial stability and help individuals manage essential expenses while seeking new employment opportunities.
Broader Economic Context
The appeal comes at a time when several sectors have reported workforce reductions due to shifting market conditions and cost-cutting measures. Industry observers note that layoffs often have a cascading effect on household finances, especially when alternative employment opportunities are limited.
By proposing a temporary tax waiver, Kavitha has framed the issue as not just a matter of individual relief but also as a broader economic support mechanism. Ensuring that displaced workers have adequate financial resources could help maintain consumption levels and provide some stability during periods of economic adjustment.
Government Response Awaited
While the Finance Ministry has yet to respond to the proposal, the issue is likely to draw attention amid ongoing discussions around tax reforms and employment trends. Policymakers may need to weigh the potential revenue implications against the immediate need to support individuals facing job losses.
Kavitha’s request underscores the growing demand for targeted policy interventions that address the realities of a changing job market. As layoffs continue to affect workers across industries, the debate around taxation of severance pay is expected to remain a key area of focus in the coming months.