Out of all the retirement options, VRS has been one of the most attractive tools for many employees. However, one should keep in mind the tax implications of VRS cash benefits before closing the account. This will help in planning investments in a way that maximizes payout after retirement.
Subject to certain conditions, Section 10(10C) of the Income Tax Act provides exemptions up to Rs 5 lakh from a VRS. Firstly, an employee must have completed 10 years of service or reached the age of 40. Also, the plan must be from a known employer, such as a public sector undertaking (PSU) or a government-constituted body.
A potential way to reduce the tax burden is by investing the VRS payment in tax-saving instruments.
Other ways to invest include PPF or one of the several long-term savings options like tax-saving fixed deposits and enjoy tax benefits under Section 80C up to Rs 1.5 lakh.
Investing the VRS cash into multiple assets with different maturity periods also helps reduce the annual tax burden. Retirees can also consider tax-free bonds and mutual funds as these investments generate income with low tax liabilities.
Compiled by Syed Muskan
