Example:-Mr. X received voluntary retirement compensation of ₹ 7,00,000 after 30 years 4 months of service. He still has 6 years of service left. At the time of voluntary retirement, he was drawing basic salary ₹ 20,000 p.m.; Dearness allowance (which forms part of pay) ₹ 5000 p.m. Compute his taxable VRS.

Chapter No. 07 - Salary - Voluntary Retirement or Separation - [Sec. 10(10C) AND RULE 2BA]

The maximum amount of compensation on account of VRS shall not exceed the following:

1. 25,000 x 3 x 30 = 22,50,000 or
2. 25,000 72 = 18,00,000

Also, least of the two is exempt:

1. Compensation received i.e. 7,00,000
2. 5,00,000

₹ 5,00,000 being the least of the two sums, is exempt u/s 10(10C)

Hence taxable voluntary retirement compensation is ₹ 2,00,000 (i.e. 7,00,000 – 5,00,000).

Dated: 10-8-2015