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Taxability of Voluntary Retirement Scheme

Any amount received on voluntary retirement is exempt from tax if the following conditions are satisfied :

  • Compensation is received at the time of retirement only.
  • The compensation is received as per the scheme of Voluntary Retirement which is framed in accordance with the prescribed guidelines.
  • Maximum amount of exemption is Rs. 5,00,000/-

    • The scheme of Voluntary Retirement to be eligible for deduction should be framed as per the guidelines as below :

  • The scheme should be for employees who have completed 10 years of service or have completed 40 years of age.
  • The scheme is for all employees, workers and executives of the organisation except directors of a company or co-operative society.
  • The scheme should be drawn such that it results in overall reduction in the existing strength of employees.
  • The vacancy caused by such voluntary retirement should not be filled up, nor should the employee thus retiring take up employment in a concern/company belonging to the same management.
  • The amount receivable on such retirement should not exceed the amount equal to three month's salary for each completed year of service OR monthly pay at the time of retirement multiplied by the balance months of service left before the date of normal retirement.

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