Voluntary Retirement Scheme: Do We Need Government Approval Before Announcing During a Pandemic?

Dear Experts, is any approval from governmental authorities required before announcing or implementing a Voluntary Retirement Scheme in a company? Additionally, should this be announced during a pandemic period when the Disaster Management Act is in force? I kindly request the views of the experts on this matter. Thank you.

There is no specific provision in the Disaster Management Act of 2005 that requires governmental permission before implementing a Voluntary Retirement Scheme (VRS). It has to be optional, and its attractiveness would depend on the benefits package. Generally, it is observed that good and productive employees opt for VRS as they are confident of finding re-employment elsewhere, while the non-productive ones tend to stay behind and enjoy the situation.

The consent of the Union/Works Committee is mandatory. Please inform and seek approval from the Government Authorities (Labour Office & Factory Office) in advance. Ensure that you do not violate any COVID-19 protocols during the process or execution of the VRS.

Regards

Thanks to all for offering their views.

Consent from the IT Department for Tax Benefits

Do we need to obtain any consent from the IT Department to avail tax benefits on the amount payable to the employees under VRS? Please share your views.

Implementation of a VRS Scheme

A VRS (Voluntary Retirement Scheme) can be implemented at any time. Officially, there is no need to seek permission from any authority. However, if the organization has unions, it is advisable to involve them and keep them informed.

IT Rebate and Compliance

For IT rebate, please gather information on the necessary steps to take. To the best of my knowledge, you will be required to send a copy of the scheme to the IT authority for their records after structuring the scheme in accordance with the guidelines of the ITAX Rule.

Dear Sridharan, as the very name "Voluntary Retirement Scheme" would indicate, this is an exit arrangement for willing employees of an industrial entity as a result of bilateral negotiation between the employer and the employees. Therefore, no statutory approval is required to implement a scheme of VR. However, to gain tax benefits under the Income Tax Law, the scheme should conform to Section 10(10C) of the Income Tax Act read with the guidelines under Rule 2BA.

It does not require any approval from government authorities for implementing the Voluntary Retirement Scheme in the company.

Understanding Voluntary Retirement

Voluntary retirement is essentially a wish to resign from services voluntarily. Although it is a form of retrenchment, it does not fall under retrenchment because no mandatory removal of employees is involved. The employer offers a scheme to pay a lump sum amount to employees who wish to leave the job before the date of superannuation. The package offered under this scheme is equivalent to or more than what one would earn until retirement. Different companies may offer the scheme under various names, such as Golden Handshake.