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THE
GOLDEN HANDSHAKE
The
Voluntary Retirement Scheme (VRS) is the latest mantra of
many a corporate and Public sector units. The company may
decide to declare a VRS based on their HR plan and suitability.
For a common salaried individual this becomes a major decision.
VRS
or the Voluntary Retirement Scheme is declared by the company
as per their human resource policy. VRS is a scheme whereby
the employee is offered to voluntarily retire from his services
before his retirement date. Subject to certain conditions
the company offers VRS to its employees.
This
section attempts in effacing the true advantages of THE GOLDEN
HANDSHAKE.
- Which
employees are eligible for VRS ?
- What
are the guidelines for a company to declare VRS?
- Is
the amount received on voluntary retirement exempt from
tax ?
- A
company has completed only 7 years. Mr. Patkar an employee
is 34 years old. Is he eligible for VRS ?
- Can
a employee who is also a shareholder continue to hold shares
of the company after opting for VRS ?
- Can
companies go for different schemes of voluntary retirement
for different classes of employees ?
- What
constitutes the term 'salary' ?
- Mr.
Patkar has just been promoted and is under a revised salary
structure. How is the VRS amount calculated?
- Can
the voluntary retirement scheme be declared only for a particular
division of a company ?
- Can
only the loss making companies opt for voluntary retirement
scheme
- Mr.
Patkar wants to join the subsidiary company after retirement
?
Which
employees are eligible for VRS ?
The following employees are eligible for VRS scheme.
1) Public sector company.
2) Any other company.
3) Any Authority established under a Central, State
or Provincial Act.
4) Local authorities.
5) Co-operative society.
6) Universities.
7) Indian Institute of Technology.
8) Notified Institute of management, such as :
(I) Indian Institute of Management.
(II) Indian Institute of Foreign Trade New Delhi.
What
are the guidelines necessary for a company to declare
VRS?
The amount received on voluntary retirement is exempt
from tax if the scheme is framed by the company in accordance
with the following requirements,
1. The employee of the company should have completed
10 years of service or should have completed 40 years
in age.
2. It applies to all the employees of the company
except the Directors of the company.
3. The scheme of voluntary retirement has to result
in overall reduction in the existing strength of the employees
of the company.
4. The vacancy caused by voluntary requirement
is not to be filled and the retiring employee should not
be employed in another company or concern belonging to
the same management.
5. The amount received by the employee on VRS should
not exceed three months salary for each completed year
of service or salary at the time of retirement multiplied
by the balance months of service remaining before the
date of retirement.
Is
the amount received on voluntary retirement exempt from
tax ?
If
the amount is received under an approved scheme,then the
amount is exempt subject to a maximum of Rs.5,00,000 of
each employee.
It is to be noted this exemption is available for only one
Assessment Year.
A
company has completed only 7 years. Mr. Patkar an employee
is 34 years old. Is he eligible for VRS ?
Ideally for VRS the employee of the
company should have completed 10 years of service or should
have completed 40 years in age. Mr. Patkar can definitely
opt for VRS. The entire amount received on VRS is taxable
as the scheme does not follow the prescribed guidelines
and hence not eligible for any tax exemption.
Can
a employee who is also a shareholder continue to hold shares
of the company after opting for VRS ?
An employee can continue to hold the
shares even after he opts for VRS.
Can
companies declare different schemes of voluntary retirement
for different classes of employees ?
Companies can definitely declare different schemes
of voluntary retirement for different classes of their employees
provided the scheme is approved.
What
constitutes the term 'salary' ?
'Salary' includes basic salary and also includes dearness
allowance if terms of employment so provides but it excludes
all other allowances and perquisites.
Mr.
Patkar hasjust been promoted and is under a revised salary
structure. How is the VRS amount calculated ?
The last salary drawn forms the basis for computing the
amount for VRS.
Can
the voluntary retirement scheme be declared only for a particular
division of a company ?
The main purpose of the VRS scheme is to result in the
overall reduction of the existing staff. Subject to this
condition the company can declare VRS exclusively for a
particular division and not for the entire company.
Can
only the loss making companies opt for voluntary retirement
scheme ?
VRS are mostly induced to reduce the strength of the staff.
Profit making ventures can also opt for VRS.
Mr.
Patkar wants to join the subsidiary company after retirement
?
Mr. Patkar cannot join the subsidiary company after VRS.
As the guidelines clearly mention that the vacancy caused
by voluntary requirement is not to be filled nor the retiring
employee to be employed in another company or concern belonging
to the same management.
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