(D) Matter referred by Nargis Agro Ltd - Jaipur: Nargis Agro Ltd, Jaipur engaged in manufacturing of Vegetable Oils wants to offer Voluntary Retirement Scheme (VRS) to its employees to cut down its pay roll cost. The com

Section 10(10C) of the Income tax Act, 1961 provides that any amount received or receivable by an employee from specified employer at the time of his voluntary retirement or termination of service under a scheme of voluntary separation is exempt to the extent such amount does not exceed ₹5,00,000. The scheme for voluntary separation is to be in accordance with the guidelines prescribed under Rule 2BA of the Income tax Rules, 1962. The guidelines in Rule 2BA provide that the scheme of voluntary separation framed by the employer should be in accordance with the following requirements in order to be eligible for exemption: The scheme applies to an employee who has completed 10 years of service or completed 40 years of age. (This requirement is not applicable in case of employer being a public sector company.) The scheme should apply to all employees (by whatever name called) including workers and executives of the company except directors. The scheme should result in overall reduction in the existing strength of the employees of the company. The vacancies caused by voluntary separation, should not be filled up. The retiring employee should not be employed in another company or concern belonging to the same management. The amount receivable on voluntary separation should not exceed the amount equivalent to three months salary for each completed year of service or salary at the time of retirement multiplied by the balance of months of service left before the date of retirement on superannuation. If exemption under section 10(10C) of the Income tax Act, 1961 in respect of VRS compensation is opted by the taxpayer, he is not eligible for further relief under section 89 of the Income tax Act, 1961. Section 35DDA of the Income tax Act, 1961 provides that in the case of the company, where any expenditure has been incurred by way of payment to an employee under the scheme of voluntary retirement, one fifth of the total amount so paid shall be deducted in computing the profits and gains of the business for that previous year and the balance shall be deductible in equal installments in each of the four immediately succeeding previous years.