Income Tax Query

Exemption to Payments under voluntary retirement scheme (VRS)

As per Section 10(10C), amounts received in respect of any payment received or receivable by an employee on his voluntary retirement or termination of his service or voluntary separation are exempt subject to certain conditions:


1.    Eligible Employees: Employees of the following are eligible:

Ø  Public Sector Company.

Ø  Any other company.

Ø  An authority established under a Central, State or Provincial Act.

Ø  Local authority.

Ø  Co-operative society.

Ø  University established or incorporated by or under a central, state or provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956.

Ø  Any Indian Institute of Technology within the meaning of Section 3(g) of the Indian Institutes of Technology Act, 1961.

Ø  State Government.

Ø  Central Government.

Ø  Institution having importance throughout India notified specifically (Notified institutions are The International Crops Research Institute for the Semi-Arid Tropics, Action for Food Production (AFPRO), Government Tool Room and Training Centre).

Ø  Such institute of management as the Central Government may specify (Specified institutes are Indian Institute of Management, Bangalore, Indian Institute of Management, Calcutta, Indian Institute of Management, Lucknow, Indian Institute of Foreign Trade, New Delhi.


2.    Maximum amount eligible for Exemption: The maximum amount eligible for exemption is Rs.5,00,000.


3.    Money received in instalments or lumpsum: Any amount received or receivable by an employee consequent upon VRS will be exempt within the overall limit of Rs.5,00,000 whether it is received in lumpsum or in instalments.


4.    Relief under Section 89 not allowed: In case the assessee has availed of the relief under section 89 for any amount received or receivable towards voluntary retirement scheme or termination of service or voluntary separation, he will not be eligible to avail the exemption under 10(10C) in relation to such, or any other assessment year.


5.    Voluntary retirement schemes to conform to guidelines: The schemes of the said companies or authorities or societies or universities or the Institutes referred to above, governing the payment of such amounts are framed in accordance with such guidelines including inter alia, the criteria of economic viability as may be prescribed.


6.    Guidelines for Voluntary Retirement Schemes (Rule 2BA): As per Rule 2BA, the following conditions are prescribed for a voluntary retirement scheme so that the employees receiving payment thereunder can enjoy the exemption:

a.    The scheme applies to employees who have completed 10 years of service or completed 40 years of age (not applicable to employee of public sector company under scheme of voluntary separation).

b.    The scheme applies to all employees including workers and executives, excepting directors of a company or of a co-operative society.

c.    The scheme has been drawn to result in overall reduction in the existing strength of the employees.

d.    The vacancy caused by the voluntary retirement has not been filled up.

e.    The retiring employee of a company shall not be employed in another company or concern belonging to the same management.

f.     The amount receivable on VRS does not exceed 3 months’ salary for each completed year of service or salary at the time of retirement multiplied by number of months of service left before retirement.