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A Salaried man can receive VRS more than once in his lifetime. But he can plan his tax liability only once.

VRS (Voluntary Retirement Scheme) – VRS is often offered by the corporates for retrenchment of its surplus work force and directly to cut short it’s one of the major operating expense in form of salary.

Going through the legal way, the VRS falls within the meaning of “PROFIT IN LIEU OF SALARY” u/s 17(3) of the Income Tax Act,1961 as follows:

“profits in lieu of salary” includes—

the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto.

Thus, the VRS received is taxable in the hands of employee under the head ‘Income from Salary’.

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The 2 major sections: Effecting the tax planning under Income Tax Act,1961 are: –

1. Exemption U/s- 10(10C)

2. Relief U/s- 89

As per Section – 10(10C): –

Any amount received or receivable by an employee on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement 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

(viia) any State Government; or

(viib) the Central Government; or

(viic) 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

(viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf,

Is exempt to the lowest of the following amount:

  • 5.00 lakhs.
  • Amount equivalent to three months salary for each completed year of service.
  • Amount of salary at the time of retirement for the balance period of months of service left before retirement.

As per Section – 89: –

Where an assessee is in receipt of a sum under the provisions of clause (3) of section 17, a profit in lieu of salary, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, shall take such relief as may be prescribed under rule 21A of Income Tax Rules :

The main essence behind the relief u/s 89 is to save the huge amount of tax incurrence suddenly in a particular year due to receipt of a large sum of money in the form of VRS.

The relief under Rule 21A is based on the calculation of average rate of tax on such amount of compensation, being bifurcated into the three previous years immediately preceding the previous year in which the VRS is received in order to determine the tax inclination if the  entire amount is taxed at once or if it is taxed by part into the various previous years .

The Computation of relief is as follows: –

Step 1.: – Compute the Tax payable during the previous year in which the compensation is received.

Step 2.: – Compute the rate of tax on total income during the previous year in which the compensation is received.

Step 3.: – Compute the tax on total income by adding the 1/3rd of VRS amount received in each of the three preceding previous years immediately preceding the year in which the VRS is received.

Step 4.: – Compute the rate of tax for each preceding three years separately.

Step 5.: – Compute the average of rate of tax for three preceding years.

Step 6.: – Amount of relief = VRS amount X [Step 2 – Step 5]


As per Income Tax Act,1961 both the sections are mutually exclusive, i.e. an assesse can claim either exemption u/s 10(10C) or relief u/s 89 whichever is most beneficial to him. And if an exemption or relief is claimed in any assessment year, it cannot be claimed again in any other assessment year.

 Conclusion:  the relief and the exemption in relation to VRS can be claimed once in a life time. Thus, requiring an expertise in tax planning to save the maximum amount of tax incidence.

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.

The writer is a direct and indirect tax expert and can be reached on

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  1. Ashish says:

    I have received 10 lac as VRS (34 month basic salary)and my salary already I got 10 lac in this financial year till March 2022
    So how I get tax benefit on VRS amount

  2. neha yadav says:

    sir, i have taken VRS in 2020-21 and received advance salary in 2020-21 for the next years. How could i allocate the salary recieved in advance so that i can get some relief in paying tax. The acts / sections mentioned in IT Act seems to be very difficult to understand. please reply


    If the Exgratia(EG) on VRS paid in 2 different FY and the employer already considered maximum Rs.5L exemption under Sec10(10c) and deducted TDS on the balance in the first paid FY itself,can we still go for 89 relief and if so how can avail 89 Relief benefit on EG paid later.

  4. CHETHAN says:

    in case of VRS what if the employer already considered sec 10(10c) exemption and deducted the TDS on balance net salary, can we still go for 89 relief. who actually has the authority to use and to Opt 89 or 10(10c). is it the employer or employee. Please suggest

  5. Jagadeesh says:

    Thanks a lot for Taxguru. Have been getting very useful guidance on lot of tax issues. Regarding the above article of claiming benefits of section 10c and 89 simultaneously for VRS related benefits. Can you please confirm it as there are various articles and advices against the same and that they can not be simultaneously claimed. Further, for availing benefits under section 89, is it mandatory to submit the same to previous employer or can be directly claimed during final IT filing.

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May 2024