Compensation for VRS

Compensation for Voluntary Retirement

Compensation received on voluntary retirement [Sec. 10(10C)]

Voluntary retirement compensation received on voluntary retirement by an employee (of specified employer # ) is eligible for exemption [if compensation is received as per Voluntary Retirement Scheme (VRS) framed in accordance with prescribed guidelines*] as under:

Amount of exemption

Minimum of the following shall be exempted:

Actual amount Received as per guidelines; or
Rs.500000.

However, the amount of compensation should not exceed the amount equivalent to 3 months salary for each completed year of service or salary at the time of retirement multiplied by the balance month of service left, otherwise aforesaid deduction cannot be claimed as VRS guideline (point e) violated.

* Guidelines :

Scheme (VRS) must be applicable to all employees (other than director) who has either completed age of 40 years or has completed 10 years of service. (This condition is, however, not applicable in the case of an employee of a public sector company).
Such scheme must be framed to reduce strength of employees.
The vacancy caused by VRS is not to be filled up.
The retiring employee is not to be employed in another company or concern belonging to the same management.
The amount of compensation does not exceed the amount equivalent to 3 months salary for each completed year of service or salary at the time of retirement multiplied by the balance month of service left.

Specified Employer

Any company; or
An authority established under Central, State or Provincial Act; or
A local authority; or
A Co-operative society; or
A specified University; or
An Indian Institute of Technology ( IIT ); or
Any State Government; or
The Central Government; or
Notified Institution of Management (IIM Ahmedabad, IIM Banglore, IIM Calcutta , IIM Lucknow , and the Indian Institute of Foreign Trade New Delhi ); or
Notified Institution.

Notes:

Voluntary retirement compensation given by an Individual or an HUF employer, is fully taxable in hands of employee.
Salary here means Basic + DA + Commission as a fixed % on turnover, last drawn.
Where exemption is allowed to an assessee under this section in any assessment year then no deduction is allowed in any subsequent assessment year. That means deduction under this section is allowed once in life of an assessee.