Rules 19 and 20 of the Draft Income-tax Rules, 2026 address gross total income limits and guidelines for deduction on voluntary retirement or voluntary separation. Rule 19 prescribes ₹8,00,000 as the gross total income threshold for the purposes of section 17(3)(b) of the Act. Rule 20 sets out detailed conditions under which amounts received on voluntary retirement or separation can be claimed as deduction under section 19 (Table: Sl. No. 12). The benefit applies to employees of public sector companies, other companies, statutory authorities, local authorities, co-operative societies, universities, IITs, notified institutions of national or state importance, and specified management institutes. The scheme must apply to employees who have completed 10 years of service or attained 40 years of age (except in case of voluntary separation by a public sector company), must lead to an overall reduction in workforce, and vacancies arising should not be filled. Directors are excluded, and the retiring employee cannot be re-employed in another concern of the same management. The compensation amount must not exceed either three months’ salary for each completed year of service (3×N×S) or salary multiplied by remaining months of service before superannuation (M×S). “Salary” includes dearness allowance, if provided in employment terms, but excludes other allowances and perquisites. Overall, the rules aim to regulate and standardise tax deductions on voluntary retirement payouts.
Extract of Rule No. 19,20 of Draft Income-tax Rules, 2026
Rule 19
Gross total income for the purposes of section 17(3)(b) of the Act.
For the purposes of section 17(3)(b) the prescribed gross total income shall be eight lakh rupees.
Rule 20
Guidelines for the purposes of section 19 (Table: Sl.No.12) relating to voluntary retirement or voluntary separation
(1) Subject to the conditions laid in sub-rule (2) and (3), the amount received at the time of voluntary retirement or voluntary separation can be claimed as deduction for the purposes of section 19 (Table: Sl.No.12) by an employee of—
i. a public sector company; or
ii. any other company; or
iii. an authority established under a Central, State or Provincial Act; or
iv. a local authority; or
v. a co-operative society; or
vi. a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or
vii. an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961); or
viii. an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or
ix. such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf; and
(2) The deduction under sub-rule (1) is allowable only if the scheme of voluntary retirement framed by the aforesaid company or authority or co-operative society or University or institute, as the case may be, or if the scheme of voluntary separation framed by a public sector company, (hereinafter referred to as ‘the scheme’) is in accordance with the following requirements, namely:—
i. the scheme applies to an employee who has completed 10 years of service or completed 40 years of age;
ii. the scheme applies to all employees (by whatever name called) including workers and executives of a company or of an authority or of a co-operative society, as the case may be, excepting directors of a company or of a co-operative society;
iii. the scheme has been drawn to result in overall reduction in the existing strength of the employees;
iv. the vacancy caused by the voluntary retirement or voluntary separation is not to be filled up;
v. the retiring employee of a company shall not be employed in another company or concern belonging to the same management;
vi. the amount receivable on account of voluntary retirement or voluntary separation of the employee does not exceed either A or B, where: –
A= 3*N*S;
B = M*S; and
N= Number of completed years of service;
M = balance months of service left before the date of his retirement on superannuation;
S= salary at the time of retirement.
(3) In case an amount is received by an employee of a public sector company under the scheme of voluntary separation framed by such public sector company, the requirement of sub-rule (2)(i) would not be applicable.
(4) In this rule, the expression “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
