VRS Full Form: Meaning and Definition of Voluntary Retirement Scheme

Understanding Voluntary Retirement Scheme

A Voluntary Retirement Scheme (VRS) is by companies to their employees who wish to voluntarily retire from their jobs before reaching the official age of retirement. Companies tend to use VRS to reduce their workforce and cut operational costs and prevent layoffs or forced redundancies. In India, the usual age of retirement is between 58 to 60 years.

However, with VRS, employees can choose to retire in their 40s. Opting VRS, employees also gain an opportunity to enjoy their post-retirement benefit while pursuing their interests and passions. Also called Golden Handshake, VRS is offered by both private and public sector companies. 

How Does the Voluntary Retirement Scheme Work?

• ​​Most companies tend to benefit from VRS to reduce their overall workforce and improve their performance and productivity. 
• Once an employee opts for early retirement under VRS, the company cannot fill that position again. 
• Public Sector Undertakings (PSUs) must obtain prior approval from the government before offering VRS to their employees. In contrast, private firms can set their own VRS policies.
• All companies must adhere to the regulations set out in Section 2BA of the Income Tax rules.
• Individuals who choose VRS are not permitted to join another company managed by the same management.

Who is Eligible to Avail Voluntary Retirement Scheme?

• Employees need to be over 40 years old. 
• They should have completed ten years of service with the company.
• VRS is available to both executives and workers in companies and cooperative societies.
• Directors of a company or cooperative society are not eligible to avail VRS.
• The amount received through VRS is tax-free up to INR 5 lakhs under Section 10(10C) of the Income Tax Act, 1961. To benefit from this tax exemption, the employee must file the claim within the same assessment year in which they received the compensation.