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Voluntary Retirement Scheme (VRS)

Voluntary Retirement Scheme (VRS)

Maintaining a healthy work-life balance is becoming quite tough these days due to excessive competition, ever-increasing expenses and a lot of other reasons. Since the age for retirement is around 60 years in India, post this age, most people lose interest in pursuing their dreams and also physically it becomes taxing as they reach a certain age when the body starts giving up easily. Thus, most people especially in the private sector where the work pressure is tremendous opt for VRS. If you are wondering what is the VRS full form then it stands for Voluntary Retirement Scheme and this article will help you understand the features and benefits of this scheme with a lot of other crucial details.

What is a Voluntary Retirement Scheme (VRS)?

A voluntary retirement scheme (VRS) is offered by both private and government organisations to their employees, where the latter can end the period of servicing the organisation as per their own choice. Suppose, you work for a company and the company has a retirement age of 60 years. However, if you are in your 40s and want to start something of your own, travel the world, or for any personal reason, you can avail of the VRA facility and retire from the organisation earlier than the actual time of retirement. This scheme is beneficial for both the company and the employee as while the employee can start pursuing the life they desire, the company can cut costs as well.

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How does VRS work?

As per vrs rules, if anyone above 40 years of age, is working with an organisation for ten years or above, then he or she can avail of the VRS facility. All the employees, staff members, and other ground workers can avail of this facility in any organisation. However, for processing the VRS application for any employee, the organisation where he or she is working has to get multiple permissions from the government and they also need to adhere to the regulations of section 2BA of the Income Tax Act.

As VRS means voluntary retirement scheme, the company and the employee must understand that the employee who is availing of this VRS facility should not be working with any other company. As if they are working with any other company, then the benefits of VRS can be misused and thus, it is strictly prohibited as per the rules of VRS.

The objective of the Voluntary Retirement Scheme

The objective of VRS is different for an employee while it is different for the employer. The primary objective of availing VRS facility for any employee is to enjoy other aspects of life apart from work and pursue their interests while for a company, the objective of providing VRA facility is mainly reducing overstaffing and employee cost.

How did VRS start in India?

In India, as per the Industrial Dispute Act, of 1947, organisations are not allowed to go for direct retrenchment to reduce their workforce to cut down on costs. This is where VRS came in. it was introduced so that employees who are willing to leave the organisation and want to retire early, can opt for the VRS facility. Since VRS is a choice of the employee, thus trade unions and other human rights foundations also didn’t go against this scheme and it helps the organisations to maintain a healthy workforce.

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Features of Voluntary Retirement Scheme (VRS)

  • You can only take VRS if you are above the age of 40 years and have served the organisation for more than 10 years
  • The organisation where you are working needs to clear all your payments and dues and also give the provident fund amount if you are applying for VRS.
  • Another crucial feature of the VRS scheme which applied the organisations is that they cannot fill out the position of the employee leaving the organisation through VRS, for a certain period.
  • Also, the organisation needs to assist the employee through the entire retirement process.
  • On the employee’s part, the employee who is taking VRS cannot join any other organisation, especially with the same management
  • The compensation that an employee gets on availing of VRS is tax-free up to Rs. 5 lakhs.

Benefits of the Voluntary Retirement Scheme

The voluntary retirement benefits include –

  • Enjoying life with family and friends without any work pressure
  • Receiving gratuity calculated and provident fund amount at an early age before the actual age of 60 years
  • Free tax and investment consultation from the organisation for wisely investing the gratuity and PF amount.
  • Even after taking VRS, the employee is entitled to receive certain compensation from the organisation and that is tax-free up to Rs. 5 lakhs.

The benefits that a company gets from the VRS facility are –

  • Reduction in employee cost/ wages and salary
  • The amount saved from overstaffing can be used for business expansion
  • With VRS, the trade unions cannot oppose if any employee or staff is leaving the organisation on his or her own will
  • VRS helps in maintaining a healthy relationship between the employer and the employees when the latter is leaving using VRS.

How is Compensation under a VRS calculated?

The VRS compensation is calculated on the following –

  • Basic salary and DA is considered for the calculation of VRS compensation
  • Either 3 months’ salary for every year of completed service or the last drawn monthly salary calculated, by multiplying the remaining months of services till actual retirement is taken into account. The lower of these two amounts is considered for VRS compensation.


So, if you are thinking of retiring early and enjoying the other facets of life, then VRS can be your way of leaving the organisation peacefully while availing different benefits as well.

Disclaimer :

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’

The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
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Frequently Asked Questions (FAQs)

Can I get a pension after availing of VRS?

Yes, you can get a pension after taking VRS even after receiving the PF and gratuity amount.

Are PF and gratuity amounts under VRS tax-free?

The gratuity and PF amount that you receive from your employer when you avail VRS is tax-free up to Rs. 5 lakhs.

At what age can I take VRS?

You can avail VRS facility if you are above the age of 40 years. However, you need to be employed with the employer from whom you are availing VRS for at least 10 years.