Features and Benefits of the Voluntary Retirement Scheme
Table of Content
Currently, most Indians retire around the age of 60. While some people, such as judges, teachers and the CEOs of private banks, can retire at 70. Most people target retiring in their 60s, around the age of 65. But, many might want to hang up their working boots much earlier. The Voluntary Retirement Scheme (VRS) allows them to do that. Additionally, it provides dedicated workers with an easy exit in difficult situations.
What Is VRS?
As per VRS, an employee can choose to retire before the retirement age or date. Both private and public sector companies can offer their employees VRS. Some companies implement VRS to reduce their overall employee strength. Often, VRS is known as the Golden Handshake.
How Does VRS Work?
Employees who are above the age of 40 or have completed ten years of service are eligible for VRS. All executives and workers of companies and authorities of cooperative societies can opt for VRS. Cooperative society directors cannot avail themselves of the VRS policy. According to the regulations, the company can allow VRS to reduce their overall workforce. So, once somebody opts to retire early, the company cannot refill the position. Public Section Undertakings (PSUs) must ask the government for prior approval before offering their employees VRS. Private firms and companies can frame their own regulations. All companies must follow the government’s regulations as per Section 2BA under the Income Tax rules. Most importantly, an individual who opts for VRS cannot join another firm run by the same management.
How Did Voluntary Retirement SchemeStart in India?
There are certain Indian Labour Laws that do not allow employees to be retrenched, especially if they fall under a union. As per the Industrial Disputes Act, 1947, employers cannot reduce the size of their task force through retrenchment. Trade unions strongly oppose making employees redundant. VRS came about as a legal solution for this problem. Since the scheme is voluntary, the trade unions do not oppose it.
When Can a Firm Opt for Voluntary Retirement Scheme?
Companies can only implement VRS under specific circumstances. These rules help ensure that employers do not take advantage of those working for them. Most often, companies implement VRS when they’re facing intense market competition or business recession. Sometimes, companies offer VRS during joint ventures with foreign companies or takeovers and mergers. Finally, the last reason employers opt for VRS is when their products or technology become obsolete.
Features of VRS
Before an employee opts for VRS, they must make themselves aware of all the features of this scheme:
- To be eligible for VRS, the employee must complete at least ten years of service or needs to be over the age of 40.
- When the employee retires under VRS, the company must clear all provident fund and gratuity payments due.
- Under VRS, employees are eligible to receive compensation. The amount they receive is tax-free up to INR 5 lakhs under Section 10(10C) of the Income Tax Act, 1961. However, to enjoy this benefit, the employee must file the claim in the same assessment year in which they received the compensation.
- Companies need to offer assistance, such as tax consultation and counselling to smoothen the retirement process.
- Employees who retire cannot join another organisation that belongs to the same management or organisation.
- When an employee opts for VRS, the company cannot fill their vacancy.
What Are the Benefits of VRS?
When it comes to VRS, both employers and employees can benefit. Let’s take a look at the advantages of the voluntary retirement scheme:
- First and foremost, VRS offer companies an empathetic way to relieve employees of their duties while improving their economic efficiency.
- As the name suggests, the scheme is voluntary. Nobody can force the employees into opting for early retirement. Additionally, the entire process is very transparent. So, the trade unions do not object to it.
- At the time of retirement, the employee receives all the benefits and dues they are owed. They can use these funds to pursue other interests or even start their own business.
- Finally, whenever a company offers VRS, it must comply with all the regulations laid out by the Industrial Disputes Act, 1947. So, employees are guaranteed transparency and fair settlements.
When Is VRS Helpful?
An example helps us understand how helpful VRS can be. In 2019, BSNL decided to merge with MTNL, a PSU. So, they offered their employees VRS, allowing them to leave with whatever was owed to them. According to reports, over 92,000 employees from BSNL decided to go for VRS.
The voluntary retirement scheme provides benefits to both parties. When executed well, it can be a boon for everybody involved.
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