A Bengaluru-based entrepreneur has criticised the practice of taxing severance payout that laid-off employees receive. Sanket Sheth, founder and CEO of business consulting firm Kreative Kode, took to LinkedIn to share his views on severance pay and taxation after Visa announced layoffs.
“Hearing of Visa layoffs, my anger is less on the company but more on a completely non-related entity. It's the government,” wrote Sheth.
On taxing severance pay
Severance pay is money that an employer gives an employee when their job ends, typically due to reasons such as layoffs. The money is meant to help employees financially while they look for a new job.
The Bengaluru-based founder of Kreative Kode pointed out that salaried employees honestly pay tax every month and get no social security. Instead, even their severance pay is taxed by the government.
“Imagine working for years in a company like Visa. Paying lakhs in income tax every single year. Contributing to the economy. And then one day, you lose your job,” Sanket Sheth wrote on LinkedIn.
{{/usCountry}}“Imagine working for years in a company like Visa. Paying lakhs in income tax every single year. Contributing to the economy. And then one day, you lose your job,” Sanket Sheth wrote on LinkedIn.
{{/usCountry}}He then highlighted how severance pay, meant to keep families afloat, is treated like a bonus and taxed.
“The severance package you receive is taxed like a bonus. Flat 30%. Imagine, 30% deduction on the money that will pay your children's school fees, your parents' medicines, your EMI, your groceries,” he wrote.
No tax on severance pay
The entrepreneur and former employee said that Indian employees do not receive “unemployment benefits or income support.”
Keeping this in mind, he argued that severance pay should not be taxed or treated like ordinary income.
“I understand why companies lay people off because markets change and businesses change. But I struggle to understand why a severance package, whose entire purpose is to help someone survive unemployment, should be treated exactly like ordinary income,” he concluded.
The post struck a chord with a number of LinkedIn users who took to the comments section to air their views.
“The bigger issue isn't just how severance is taxed; it's that India offers very limited income support for private-sector employees who suddenly lose their jobs,” wrote one person.
“The problem is with the mindset of the people, India is not a welfare state anymore. Salaried middle class are punished heavily because they are also the most silent and obedient class,” another opined.