Retirement & VRS Settlement Form
Enter salary, service history, and leave balance to evaluate full terminal package
Full & Final Golden Handshake Settlement
Sec 10(10C) Relieved* By government rule, the employee receives the lower of Option 1 and Option 2.
Terminal Settlement Package Distribution
Understanding VRS (Golden Handshake) & Terminal Settlement Packages
When Public Sector Undertakings (PSUs) or autonomous organizations introduce a Voluntary Retirement Scheme (VRS)—frequently referred to as the "Golden Handshake"—the financial settlement package comprises multiple distinct statutory and ex-gratia components.
The Standard DPE / Gujarat VRS Formula
The Department of Public Enterprises (DPE) guidelines mandate that ex-gratia compensation for employees taking voluntary separation must be computed using two comparative limits:
- Option 1 (Years of Service Criterion): 3 months (90 days) salary (Basic Pay + DA) for each completed year of continuous service.
- Option 2 (Remaining Service Criterion): Monthly salary (Basic Pay + DA) multiplied by the total number of remaining months until the normal superannuation age of 60.
- Statutory Rule: The employee is entitled to whichever figure is the least among the two calculations.
Tax Exemption under Section 10(10C)
Under Section 10(10C) of the Income Tax Act, 1961, any amount received by an employee on voluntary retirement is exempt from income tax up to a maximum statutory limit of ₹5,00,000 across their lifetime, provided the scheme conforms to Rule 2BA of the Income Tax Rules. Any excess VRS amount above ₹5,00,000 is taxable as "Profits in lieu of salary", but the employee may claim tax relief under Section 89(1) through Form 10E.
Worked Example: 22 Years Service, 6 Years (72 Months) Remaining
Consider a PSU executive with Basic Pay of ₹60,000 and IDA of 45.4% (Monthly Wage: ₹87,240):
Frequently Asked Questions (VRS & Settlement)
Can an employee claim both Section 10(10C) exemption and Section 89 relief?
No. As per the proviso to Section 89 of the Income Tax Act, an employee who has claimed tax exemption under Section 10(10C) for a particular assessment year cannot claim relief under Section 89 for the same VRS compensation.
Is Gratuity taxable under a Voluntary Retirement Scheme?
Gratuity paid under the Payment of Gratuity Act, 1972 is completely exempt from income tax up to the statutory limit of ₹20,00,000 for non-government and PSU employees (and fully tax-free without ceiling for Central Government employees).
What is the difference between EPF and EPS?
Out of the employer's 12% provident fund contribution, 8.33% (up to a wage cap of ₹15,000, i.e., maximum ₹1,250/month) is diverted to the Employees' Pension Scheme (EPS) for lifetime monthly pension, while the remaining 3.67% plus the employee's entire 12% goes into the EPF corpus earning compound annual interest (currently 8.25%).
What is the tax exemption limit for Leave Encashment on retirement?
The Central Board of Direct Taxes (CBDT) notified an increased statutory tax exemption ceiling of ₹25,00,000 under Section 10(10AA) for non-government and PSU employees retiring on or after April 1, 2023.