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Tuesday, October 01, 2013

Voluntary Retirement Scheme


Voluntary Retirement Scheme:
In the present globalised scenario, right sizing of the manpower employed in an organisation has become an important management strategy in order to meet the increased competition. The voluntary retirement scheme (VRS) is the most humane technique to provide overall reduction in the existing strength of the employees. It is a technique used by companies for trimming the workforce employed in the industrial unit. It is now a commonly method used to dispense off the excess manpower and thus improve the performance of the organisation. It is a generous, tax-free severance payment to persuade the employees to voluntarily retire from the company.

Voluntary Retirement Scheme 10 (10C) and Rule 2 (BA)
a)      Amount received or receivable by the following employees
b)      Public sector Company
c)       Any other company
d)      Any authority established under central state or provincial Act
e)      Local authority
f)       Co operative society
g)      University
h)      IIT
i)        Any state government
j)        Any Central government
k)      Institution having importance through out India or in any state on the Central government may specify
l)        Any institute of Management as Central Government may specify in this connection.

Condition under Rule 2 BA (Important)
a)      It applies to an employee of the company who has completed 10 year of service or completed 40 years of age which ever is earlier.
b)      It applies to all the employees including workers and executive of the company and excluding the directors of the company
c)       Employees employed on permanent basis provided they have completed minimum 5 years of service and have at least 5 years of service remaining before their superannuation
d)      The scheme of Voluntary retirement or separation has been drawn up to result in overall reduction in the existing strength of the employee of the company
e)      The Vacancy caused by Voluntary retirement or separation is not to be filled up
f)       The retiring employee shall not be employed in another company or concern belonging to the same management.
g)      The amount receivable on account of Voluntary retirement or separation does not exceed the amount equivalent to 3 month salary for each completed year of service or salary at the time of retirement multiplied by the balance month of services left before the date of retirement.

Note: The condition that an employee of the company who has completed 10 year of service or completed 40 years of age which ever is earlier is not applicable to Voluntary separation scheme framed by Public Sector Company. Salary for this purpose include basic pay and DA and commission as a % of Turn over achieved by the employee

Taxability:
There can be any amount paid by the employer for VRS. For taxation purpose least of the following is exempt from tax
a)      3 months salary for each completed year of service
b)      Salary at the time of retirement × balance months of service left before date of retirement
c)       Rs. 5,00,000
d)      Actual amount received