Voluntary Retirement Scheme - VRS

Income Tax Benefits

Under the provisions of Section 10(10C) of the Income Tax Act, 1961, an employee is eligible to claim a one-time exemption up to Rs 5,00,000 in relation to the compensation received under a VRS



Conditions for claiming the benefit

1. The scheme applies to an employee who has completed 10 years of service or attained 40 years of age. In case of employees of PSU this condition is waived for the purpose of enjoying the tax exemption.
   
   
2. The vacancy resulting from an employee availing VRS should not be filled up and the retiring employee cannot take up employment with another company belonging to the same management where the employee was working.
3. The scheme should be drawn to result in overall reduction in the existing number of employees.
   
   
4. The scheme should apply to all employees (except directors) of the company.
   
   
5. The amount receivable by employees on voluntary retirement should not exceed 3 months salary for each completed year of service; or salary for the balance months of service left before the date of retirement or superannuation. ‘Salary’ in this case means the last drawn salary and includes only Basic salary + dearness allowance and excludes all other allowances and perquisites.
   
   
   
   

Once in the Life Time

This is a one time exemption available in the lifetime. If at a later stage in life, an employee gets similar opportunity of VRS then he would not be eligible to claim any exemption under Sec. 10 (10C) of the Act.