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What Is the Voluntary Retirement Scheme?

The Voluntary Retirement Scheme (VRS) is a method that lets employees leave their jobs before the normal retirement age, which is usually around 60 years in India. With this scheme, people working in their 40s or 50s can choose to stop working early. Companies use  VRS to amicably reduce the number of employees, lower their expenses etc . At the same time, it helps employees who want to take a break from work, start something new, or just relax after many years of service. Read More


Employees who take VRS get a one-time payment called compensation. They also get other benefits like Provident Fund (PF), gratuity, and more. It helps both the company and the employee, making it a peaceful and helpful way to move into retirement. Read Less

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Written ByShruti Gujarathi
AboutShruti Gujarathi
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Shruti Gujarathi has 5 years of experience in the BFSI sector, and as Manager – Digital Marketing at Bajaj Allianz Life Insurance, manages digital and content marketing. She has had hands-on experience in content strategy, performance marketing and Strategic Alliances over a career spanning 10 years, with deep expertise in insurance domain.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 29th July 2025
Modified on: 31th July 2025
Reading Time: 15 Mins
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What is the voluntary retirement scheme?

The voluntary retirement scheme is offered by both private and public companies which allows employees to opt for early retirement before their official retirement age , usually with a financial compensation package..

Some benefits of voluntary retirement scheme include:

  • Early retirement without losing financial support
  • Tax-free money up to a certain limit

Smooth and respectful exit from the company with full support


Key objectives of the Voluntary Retirement Scheme

The Voluntary Retirement Scheme is not just about early retirement. It is a method used by companies to plan better and employees to retire peacefully. Here’s what the scheme tries to achieve:

For Companies:

  • Cost cutting: Helps save on employee salaries and other costs.
  • Workforce management: Allows removal of extra staff without conflicts.
  • No legal trouble: Avoids problems with trade unions or legal cases.
  • Brings in fresh talent: Opens space for younger employees in the future.

For Employees:

  • Peaceful exit: Gives a respectful and smooth way to leave.
  • Early retirement: Retire in your 40s or 50s with financial support.
  • Lump sum payment: Receive compensation based on salary and years of service.
  • Extra benefits: Includes PF, gratuity, counselling.
  • Freedom to explore: You can start a new career, relax, or follow your passion.

How did VRS start in India?

In India, companies cannot easily terminate employees due to protective laws like the Industrial Disputes Act of 1947, which safeguard workers from sudden job loss. However, there are situations where companies may have a surplus of employees.. To handle this, the Voluntary Retirement Scheme (VRS) was introduced as a lawful and peaceful way to reduce staff. Over time, many public sector and private companies started using VRS to amicably manage their workforce in a fair manner.


What are the features of the voluntary retirement scheme?

  • The Voluntary Retirement Scheme has some of the following features and may vary from one employer to another and will depend on the terms specified in the scheme belonging to each entity -It is voluntary – employees apply by choice.
  • It offers compensation and retirement benefits like provident fund, gratuity.
  • Once you take VRS, you can’t rejoin the same company, its management or group related companies.
  • It is often used in public and private sector companies.

What are the criteria for a voluntary retirement scheme?

To apply for VRS, you must meet certain conditions. It may vary between employers and depends on the specific terms outlined in each organization’s scheme. These include:

  • The scheme usually applies to all employees, whether they work in the government or private sector.
  • Directors and top-level executives are generally not eligible for this.
  • The scheme must follow rules under the Industrial Disputes Act, 1947.
  • VRS must be optional, and must be voluntarily opted by the employee .
  • Companies must clearly explain the terms and benefits of the scheme.
  • The decision must be made with full awareness by the employee.
     

How is the compensation for voluntary retirement scheme calculated?

Voluntary retirement compensation is calculated based on the employee’s last drawn salary. The private company typically offers either three months' salary for every completed year of service or the salary at the time of retirement multiplied by the number of months left until the official retirement date—whichever amount is lower. This can vary organization to organization

For public sector, the compensation is typically calculated as 45 days' salary for each year of service or the salary for the remaining service period—whichever is less.

For example, if an employee has 10 years left before retirement and earns ₹50,000 a month, they may receive ₹6 lakhs (₹50,000 × 12 months). The amount which is higher is offered. The total payment is called compensation. This is in addition to PF, gratuity, and other dues.


Conclusion

The voluntary retirement scheme is a helpful option for both companies and employees. For employees, it offers early retirement with financial safety. For companies, it allows them to amicably reduce the workforce.


FAQs

  1. Is VRS a good option?

    VRS can be a good option if you are thinking about retiring early. It helps you leave your job before the retirement age and the VRS Compensation can help you manage your expenses. Many people use this money to start a small business, travel, or spend more time with their family.


  2. Do we get a salary after VRS?

    You do not get a monthly salary after choosing VRS but you will receive a one-time payment from the company, which is called VRS compensation. This is based on how many years you worked and your last salary.


  3. Can I rejoin after VRS?

    If you take Voluntary Retirement through VRS, you cannot rejoin the same company, its sister company, or any business under the same management. This is a rule in most VRS schemes. Once you accept the offer and get the compensation, your working relationship with the company ends. However, you may join a different company or start your own work if you wish.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

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Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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