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VRS: All round benefits

Mar 3, 2003

The Union Budget 2003-04 presented on Friday could be termed as populist. With elections round the corner, the Finance Minister (FM) has tried his best to take care not to upset the public at large and to an extent has tried to live upto his promise of putting money in peoples pockets. One such advantage the FM has been able to dole out is the announcement to exempt voluntary retirement scheme (VRS) based on deferred payment upto Rs 0.5 m from the tax net. In today’s age of competition, cost cutting has been the prime intention of every industry, big or small. One aspect of cost cutting and improving productivity has been the employee rationalization undertaken by the companies. This is nothing but offering VRS to its employees. The above announcement in the Budget serves a dual purpose (if one can call it). It not only helps the FM in keeping his promise of putting more money in peoples pockets, it also helps the industry by making VRS more attractive as compared to the period pre-budget.

The scenario pre-budget on VRS was that the tax exemption was applicable upto Rs 0.5 m on a lumpsum basis. Any amount over Rs 0.5 m was subject to tax deducted at source (TDS) at 30%. But now, by exempting voluntary retirement scheme (VRS) based on deferred payment upto Rs 0.5 m from the tax net, the government has helped companies (more so, public sector enterprises) in making the VRS more attractive. The companies offering VRS can now make the VRS payments in parts spread over a few years in such a manner that each year the VRS amount does not exceed Rs 0.5 m.

This will help the employees opting for VRS save on taxes. Savings on taxes makes the VRS option more attractive and as a result it would be easier for the companies to push such schemes. This will be of particular benefit to the huge PSU’s (Public Sector Units), who have massive employees on their payrolls and sagging bottomlines.

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