Voluntary Retirement Compensation (VRS)
Introduction
Voluntary Retirement Compensation, provided under approved schemes, is exempt from tax up to Rs. 5,00,000 if certain conditions are satisfied. It is a one-time benefit taxable as profits in lieu of salary.
Exemption for VRS Compensation
- Quantum of Exemption: Lower of:
- Compensation received; or
- 5,00,000.
- One-Time Benefit: The exemption cannot be claimed again if VRS is availed a second time.
Eligibility Criteria for Exemption
- Conditions for Employees:
- Must have completed 10 years of service or attained 40 years of age (not applicable to Public Sector Companies).
- Must not re-join a company under the same management.
- Must not have claimed exemption for VRS earlier.
- Scheme Requirements:
- VRS is paid by the specified category of employer.
- Must reduce overall employee strength.
- No re-filling of vacancies created by VRS.
- Applies to all employees (excluding directors).
- Compensation cannot exceed 3 months’ salary for each completed year of service or salary for the remaining period until retirement.
Specified Employers for VRS Exemption
- Central and State Governments.
- Public Sector Companies.
- Any other Companies.
- Local Authorities.
- Co-operative Societies.
- Universities and specified institutions (e.g., IITs, IIMs).
- Action for Food Production, New Delhi (AFPRO)
- Government Tool Room & Training Centre, Rajajinagar Industrial Estate, Bangalore
Non-Eligibility for Exemption
- VRS availed for the second time.
- Employee has not met age or service criteria (except in Public Sector Companies).
- Directors of companies or co-operative societies.
- Employee re-joins a company under the same management.
- Employee claims relief under Section 89.