VRS Calculator

What is VRS?

Voluntary Retirement Scheme (VRS), commonly called the "Golden Handshake", is when your employer offers you compensation in exchange for early retirement. It's used by PSUs, private companies undergoing restructuring, and banks. You leave the company before the formal retirement age (typically 58-60) in exchange for a lump sum.

The Section 10(10C) tax exemption

VRS compensation has a special tax exemption under Section 10(10C). The exempt portion is the LOWER of three amounts:

• ₹5 lakh lifetime cap — once availed, gone forever
• 3 months × years of completed service formula based on last drawn (basic + DA)
• Last drawn salary × balance months till retirement
• The actual VRS amount received

Excess over the exempt portion is fully taxable as salary income at your slab rate.

Worked example

Suresh, 52, has worked 25 years at his PSU. Last basic + DA: ₹65,000/month. Retirement age: 60 (8 years away = 96 months). VRS offered: ₹18 lakh.

• Method 1 (3 months × years): ₹65K × 3 × 25 = ₹48.75 lakh
• Method 2 (last salary × balance months): ₹65K × 96 = ₹62.4 lakh
• Lifetime cap: ₹5 lakh
• Actual VRS: ₹18 lakh

Lowest = ₹5 lakh exempt. Taxable: ₹18L − ₹5L = ₹13 lakh, added to salary, taxed at slab.

VRS eligibility (employer side)

• Most companies require minimum 10 years of completed service
• Age typically 50+ (PSUs sometimes 40+ for technical reasons)
• The VRS scheme must satisfy certain employment-tax law conditions to qualify for the exemption

VRS vs early retirement vs resignation — what changes?

• VRS: Section 10(10C) exemption + Gratuity + Leave encashment
• Early retirement (employer-initiated): Often classified as VRS automatically; same tax treatment
• Resignation: No Section 10(10C). Just gratuity + leave encashment + pending salary

Common mistakes

• Treating VRS as gratuity. Different sections (10(10C) vs 10(10)). Calculate separately.
• Forgetting leave encashment runs separately under Section 10(10AA) with its own ₹25L cap.
• Filing wrong ITR. VRS in same year requires ITR-2 minimum.
• Spending VRS lump sum without re-investing. Most retirees should invest in SCSS, POMIS, or annuity for monthly income.

Tip: stagger the VRS year

The VRS lump sum lands in one financial year. If your other income is high that year, tax on the taxable portion can hit 30%+. If possible, time the VRS just after the new financial year starts so you have 12 months for tax planning (NPS contributions, ELSS, tax-saving FDs, etc.).

Related

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