In India, the retirement age for most government and private jobs is generally considered to be 60 years. However, in recent years, many employees have been choosing to leave their jobs before the age of 60. This is called VRS, or Voluntary Retirement Scheme, meaning retirement before the age of 60.

Many people have this question: If an employee takes VRS at the age of 55, does he or she continue to receive the same salary for the next five years as he or she did during their employment? There is considerable confusion regarding this question. In reality, the rules are slightly different.

Question: What exactly is VRS?

VRS, or Voluntary Retirement Scheme, is a system in which employees can voluntarily leave their jobs before the set retirement age (usually 58–60 years). Companies often introduce this scheme to reduce costs or make organizational changes. Under this scheme, the employee is given a lump sum compensation in exchange for leaving. Additionally, pension, gratuity, and other retirement benefits may also be available. Many people choose VRS so they can retire early and start a new job or spend more time with their family.

Question: Do you really receive 5 years' salary if you take VRS at 55?
First, it's important to dispel the myth that you don't receive your full salary for the next 5 years if you take VRS.
In fact, instead of paying your employee a monthly salary, the company provides a lump sum compensation.
This amount is determined based on the employee's previous salary and remaining service period.
Sometimes, people believe they have received 5 years' salary, but this is only a calculation method. Bonuses, incentives, or other allowances are not included.

Question: How is VRS calculated?
Two methods are generally used to determine VRS compensation.

1. Based on years of service: Approximately 3 months' salary is paid for each completed year of service.

2. Based on time remaining until retirement: Salary is calculated for the number of months remaining until the employee's retirement age.

The lesser of these two amounts is paid to the employee.

For example, if an employee takes VRS at the age of 55 and their retirement age is 60, their remaining service will be considered approximately 5 years, or approximately 60 months. Compensation is calculated based on this.

Question: What are the reasons behind taking VRS?

Many employees take VRS because they want to quickly relieve the stress of their job or start a new job. Additionally, companies often offer this option to employees to reduce expenses.

People often use the money they receive after taking VRS for the following purposes:

Starting a small business
Building a retirement fund
Funding children's education or wedding expenses
Buying a house or paying off a loan

Question: Is VRS money taxable?
There have been no changes to the income tax slabs for the financial year 2026-27.
However, the existing rules of the new tax regime will remain in effect.
If your income is between ₹4 lakh and ₹8 lakh, you may be taxed at 5%.

Income between ₹8 lakh and ₹12 lakh will be taxed at 10%.
This means that tax rates will remain the same under the new tax regime for now.

Who can take VRS?
Not every employee is eligible for VRS. Certain conditions generally need to be met.

General conditions for taking VRS:

The employee must be at least 40 years old.

They must have completed 10 years of service with the organization.

The company or organization must have a VRS scheme in place.

This scheme is often implemented in government banks and PSUs when staff become excessive. Private companies implement this scheme based on their financial situation.

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