Tax implications on VRS
This query is : Resolved
16 March 2017
Tax implications on voluntary retirement, conditions.Is the date of announcing the scheme important for calculating tax liability ?
16 March 2017
to employs allowed as deduction in 5 installments from year of payment
16 March 2017
to employees exempt upto 5 lakh and excess is taxable under normal slab rates
17 March 2017
Thank you so much sir..
17 March 2017
I have one doubt sir. For example VRS scheme is announced in 15 Jan 2017 . VRS amount is 10 lakhs and salary received during the year 2016-17 is 4 lakhs .but VRS approved on 5 April 2017 .In this case how tax will be calculated,and will the best VRS amount added under the head salary for the year 2016-17 or VRS amount will be taken to the next assessment year
26 July 2025
Great question! The **tax treatment of Voluntary Retirement Scheme (VRS) compensation** depends on the **date of receipt** and **date of approval** of the scheme.
---
### Key Points on Tax Implications of VRS:
1. **Exemption Limit:**
* Up to ₹5 lakh received under VRS is **exempt from tax** under **Section 10(10C)**.
* Amount exceeding ₹5 lakh is taxed as **salary income** in the year of receipt.
2. **Conditions:**
* The VRS scheme must be **approved by the employer**.
* The amount should be received **on or after the date of approval**.
3. **Date of Announcement vs Date of Approval:**
* The **date of approval** of the VRS scheme is more important than the announcement date.
* Tax liability arises in the **Assessment Year corresponding to the Financial Year in which the VRS amount is received** (after approval).
---
### Your Specific Scenario:
* **Announcement Date:** 15 Jan 2017 (FY 2016-17)
* **Approval Date:** 5 April 2017 (FY 2017-18)
* **VRS Amount:** ₹10 lakh
* **Salary for FY 2016-17:** ₹4 lakh
---
### How is tax calculated?
* Since the VRS scheme is **approved on 5 April 2017**, the amount is considered received in **FY 2017-18** (AY 2018-19).
* So, **VRS amount is taxable in AY 2018-19** (not in AY 2017-18).
* In AY 2018-19, exempt ₹5 lakh under Section 10(10C).
* Remaining ₹5 lakh will be added to salary income and taxed at normal slab rates.
* Your salary income for FY 2016-17 (₹4 lakh) will be taxed in AY 2017-18 as usual.
* VRS amount will **not be added to salary income in AY 2017-18** because approval was after 31 March 2017.
---
### Summary:
| Date/Event | Tax Year/Assessment Year | Tax Treatment |
| -------------------------- | ------------------------ | ------------------------------------------------------ |
| Announcement (15 Jan 2017) | FY 2016-17 (AY 2017-18) | Not relevant for tax on VRS |
| Approval (5 April 2017) | FY 2017-18 (AY 2018-19) | VRS taxable in this year, exemption on ₹5 lakh applies |
---
If you want, I can help you with sample tax calculations or explain how this fits in your ITR filing. Would that help?
---
### Key Points on Tax Implications of VRS:
1. **Exemption Limit:**
* Up to ₹5 lakh received under VRS is **exempt from tax** under **Section 10(10C)**.
* Amount exceeding ₹5 lakh is taxed as **salary income** in the year of receipt.
2. **Conditions:**
* The VRS scheme must be **approved by the employer**.
* The amount should be received **on or after the date of approval**.
3. **Date of Announcement vs Date of Approval:**
* The **date of approval** of the VRS scheme is more important than the announcement date.
* Tax liability arises in the **Assessment Year corresponding to the Financial Year in which the VRS amount is received** (after approval).
---
### Your Specific Scenario:
* **Announcement Date:** 15 Jan 2017 (FY 2016-17)
* **Approval Date:** 5 April 2017 (FY 2017-18)
* **VRS Amount:** ₹10 lakh
* **Salary for FY 2016-17:** ₹4 lakh
---
### How is tax calculated?
* Since the VRS scheme is **approved on 5 April 2017**, the amount is considered received in **FY 2017-18** (AY 2018-19).
* So, **VRS amount is taxable in AY 2018-19** (not in AY 2017-18).
* In AY 2018-19, exempt ₹5 lakh under Section 10(10C).
* Remaining ₹5 lakh will be added to salary income and taxed at normal slab rates.
* Your salary income for FY 2016-17 (₹4 lakh) will be taxed in AY 2017-18 as usual.
* VRS amount will **not be added to salary income in AY 2017-18** because approval was after 31 March 2017.
---
### Summary:
| Date/Event | Tax Year/Assessment Year | Tax Treatment |
| -------------------------- | ------------------------ | ------------------------------------------------------ |
| Announcement (15 Jan 2017) | FY 2016-17 (AY 2017-18) | Not relevant for tax on VRS |
| Approval (5 April 2017) | FY 2017-18 (AY 2018-19) | VRS taxable in this year, exemption on ₹5 lakh applies |
---
If you want, I can help you with sample tax calculations or explain how this fits in your ITR filing. Would that help?
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