Voluntary Retirement Scheme 2022: Definition, VRS Benefits & Features

There are numerous circumstances where businesses feel compelled to cut workforce strength. The organization employs a variety of strategies to achieve this goal. A Voluntary Retirement Scheme is one of these measures. Today, we will provide you with all of the necessary facts on this scheme, such as what is a VRS Scheme? Its goal, benefits, characteristics, need, process, and so on. So, if you want to learn everything there is to know about voluntary retirement, you should read this article all the way through.

What is a Voluntary Retirement Scheme?

The employee is offered the option to voluntarily leave from the company before the retirement date under this arrangement. In order to diminish staff strength, voluntary retirement programs are used. Workers, company leaders, cooperative society authorities, and others can choose to retire voluntarily. Companies in both the public and commercial sectors can provide voluntary retirement plans. A golden handshake is another name for this method. Employee strength is reduced through voluntary retirement, allowing the corporation to lower its overall costs. Voluntary retirement comes with a slew of laws and requirements. One of the most basic regulations is that a departing employee should not apply to work for another company in the same field.

Voluntary Retirement Scheme

Voluntary Retirement Scheme Highlights

Name of schemeVoluntary retirement scheme
Launched byGovernment of India
ObjectiveTo reduce the strength of employees in a company
Status Active

Objective Of Voluntary Retirement Scheme

The major goal of this strategy is to reduce employee strength in a company that is unable to pay its employees owing to financial difficulties. The corporation can save money by granting voluntary retirement. Many benefits are also provided to employees under this system, such as staff rehabilitation facilities, help on managing funds, and so on, all of which will immediately increase their income.

 Atal Pension Yojana 

Voluntary Retirement Scheme Advantages and Characteristics

  • Employees are given the option to retire from their jobs under the scheme.
  • This retirement takes place before the scheduled retirement date.
  • It is important to understand that voluntary retirement is not the same as forced retirement. Employees have complete control over whether or not they want to leave their jobs.
  • It should be emphasized that only those employees who have completed 10 years of service or are over the age of 40 are eligible for a voluntary retirement scheme.
  • Both public and private companies participate in this program.
  • A golden handshake is another name for this method.
  • Employees’ strength is lowered through voluntary retirement in order to reduce the firm’s costs.
  • A person who retires voluntarily is not eligible to work for another company in the same field.
  • Employees who have completed 10 years of service or are above the age of 40 are eligible for this scheme.
  • The corporation provides different perks to those who choose to retire voluntarily, such as rehabilitation services, counselling, and so on.
  • Retiring employees are also provided tax-free remuneration up to a specified amount.
  • Employees will be provided with a provident fund and gratuity dues when they retire.

Direct Retrenchment Voluntary Retirement

As you may be aware, Indian labour rules prohibit employers from directly retrenchmenting employees, and if they do, trade unions are outraged. Due to financial difficulties, a business may find itself unable to pay its staff. A voluntary retirement system has been implemented to deal with the condition of overworked personnel. Employees take voluntary retirement, thus labour unions are not opposed to this concept.

Situations Where a Voluntary Retirement Scheme Is Used

  • Obsolescence of product or technology
  • Takeovers and mergers
  • Joint ventures with foreign collaborations
  • Recession in business
  • Intense competition

LIC Saral Pension Yojana

Compensation For Voluntary Retirement Scheme

  • The compensation under the voluntary retirement scheme is based on the employee’s most recent income.
  • The company’s payment is equivalent to the employee’s 3-month salary for each completed year of service, or the employee’s salary at the time of retirement is multiplied by the months of service left before the initial date of retirement.
  • Compensation in public sector banks is computed on the basis of 45 days of salary each year of service or the wage for the remaining period, whichever is lower.

VRS Benefits

  • Employees who choose to participate in a voluntary retirement scheme are eligible for a variety of benefits.
  • For each completed year of service, the employee will be paid 45 days’ salary or monthly emoluments multiplied by the remaining month of service before the typical date of employment, whichever is less.
  • A provident fund and gratitude dues will also be provided to the employee.
  • Up to a certain amount, the remuneration paid at the time of voluntary retirement is tax-free.
  • Employees who choose voluntary retirement receive benefit packages from their employers.

Voluntary Retirement Conditions

  • Recession in business.
  • Intense competition.
  • Joint venture with foreign collaboration.
  • Takeover and merger.
  • Obsolescence of product or technology.

Sukanya Samriddhi Yojana

Criteria for Eligibility
  • At least 40 years of age is required of the applicant.
  • The applicant must have worked for the company for a minimum of ten years.
  • Only the company’s employees are eligible to participate in this programme. The only exceptions are company directors and cooperative societies.

Voluntary Retirement Scheme Eligibility

  • For each year of service completed, the departing employee will be paid 45 days of salary


  • Monthly emoluments at the time of retirement multiplied by the number of months of service remaining until the customary start date (whichever is less).
  • The employee will be provided with a provident fund and gratuity dues.
  • Up to a specific sum, the compensation received by the retiring employee at the time of voluntary retirement is tax-free (terms and conditions applied).
  • Employees who choose a scheme are also provided benefit packages.


Is it true that if I join VRS, I will receive a pension?

The employee will receive benefits not just in terms of pension, but also in terms of gratuity, or PF.

What is the best way to compute VRS?

The VRS is calculated by multiplying the salary by the remaining months until your actual retirement.

Is gratuity paid in excess of the VRS amount tax-free?

Yes, however there is a limit, and you must pay tax beyond that.

What does it mean to have a wage that is tax-free?

A wage that is tax-free is one for which the employer is not responsible for paying the employee’s salary tax.

What is the VRS’s age requirement?

The candidate for the VRS must be over the age of 40.

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