Income tax on severance pay: Pushing some of the biggest economies into a lockdown to curb the spread of the pandemic, layoffs are inevitable in the current work scenario. If one does end up losing their job, the company is liable to let them go with a severance package – taxable in nature. Amid mass layoff news coming in from the office of recruiters like Twitter, Amazon, Meta, Google, etc., it is important to know that the severance pay that a laid-off employee receives is not a tax-free income. However, there are certain conditions under Section 10(10C) that enables a laid-off employee to claim income tax exemption on severance payment. But, the income tax exemption can only be claimed in the assessment year the compensation is received.