How Is Payment On Voluntary Retirement Scheme Taxed in India?

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Voluntary Retirement Scheme (VRS) was until a few years back very much in vogue. It was also called golden handshake because a lot of employees received lumpsum payment depending on the number of years of service they put in at an organisation.

How Is Payment On Voluntary Retirement Scheme Taxed in India?
VRS is applicable to employees who have put in 10 years of continuous service. In India retrenchment was not permitted and hence to taking the legal route companies were allowed to provide a VRS to employees.

There maybe a number of reasons why a company could opt for a VRS. These include the following:

a) Heavy competition

b) Recession in the business

c) Takeover and merger

d) Technological innovation that has made the business unviable.

It's important to note that once a VRS is offered, the company should not fill the vacant position thus created. Another pertinent thing to note is that the amount through the scheme should not exceed one and half times the monthly salary for each completed year of service.

Taxation of Income on Voluntary Retirement Scheme?

If the amount received by way of the VRS does not exceed a sum of Rs 5 lakhs, there is no problem with regards to taxation. This applies to both government and private sector employees.

It also extends to a host of other institutions and bodies. It's also important to note that if you have claimed the exemption in one financial year, you cannot claim it in another year.

What this means is that you should not have taken VRS from two different companies during your working period.

These days there are very few companies that are offering Voluntary Retirement Scheme.

However, a few years back we seen many companies offering the same to be more lean and flexible and nimble footed in operations.

However, VRS strategies may not always be the best.

It may result in productive employees taking a VRS, leaving the less productive ones to stay in the company. This is not in the interest of the company in the short term.

Read more about: vrs, taxation
Story first published: Wednesday, April 1, 2015, 11:08 [IST]
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