Bengaluru: A Bengaluru-based entrepreneur has sparked a debate on the taxation of severance pay after criticising the government’s policy of taxing compensation received by employees who lose their jobs.
Sanket Sheth, founder and CEO of business consulting firm Kreative Kode, shared his views on LinkedIn following reports of layoffs at global payments company Visa. He argued that severance pay, intended to provide financial relief to employees during unemployment, should not be taxed like regular income.
Founder questions taxation policy
In his post, Sheth said his frustration was directed more at the taxation system than at companies carrying out layoffs.
He noted that salaried employees already pay income tax every month without receiving significant social security benefits. According to him, taxing severance packages further increases the financial burden on individuals who have unexpectedly lost their jobs.
“Imagine working for years in a company, paying lakhs in taxes every year, and then losing your job. The severance package meant to support your family is taxed like a bonus,” he wrote.
Calls for policy rethink
Sheth argued that severance pay should be viewed as temporary financial assistance rather than ordinary income. He pointed out that unlike several other countries, India does not offer unemployment benefits or sustained income support for most private-sector employees.
He said the purpose of severance pay is to help individuals meet essential expenses such as children’s education, medical bills, loan repayments and household costs while they search for new employment.
Social media users echo concerns
The post resonated with many LinkedIn users, who highlighted the lack of financial protection available to laid-off private-sector employees.
Several commenters argued that India needs stronger social security measures for salaried workers, while others criticised the tax treatment of severance payments during periods of unemployment.
The discussion has renewed calls for policymakers to review existing tax provisions and explore ways to provide greater financial support to employees affected by layoffs.