Microlesson · 5-min read

Voluntary Retirement Scheme Expenditure [Section 35DDA]

# Deduction for Voluntary Retirement Scheme [Section 35DDA]

Section 35DDA spreads the cost of paying employees under a Voluntary Retirement Scheme (VRS) over time, rather than allowing it all at once.

## Rules

1. Applicability: Any assessee making payment to employees under a VRS.

2. Deduction amount: The actual expenditure is allowed in 5 equal instalments (1/5th each), commencing from the year of payment.

3. Exclusivity: No deduction is allowed for this expenditure under any other provision of the Act.

Worked example

### Example 1

VRS amortisation: An employer pays ₹25 lakh under a VRS in the previous year. Deduction = ₹25 lakh ÷ 5 = ₹5 lakh per year for 5 years, starting from the year of payment. The whole ₹25 lakh cannot be claimed in the year of payment.

⚠️ Common exam mistakes

Claiming the entire VRS payment as a deduction in the year of payment — it must be spread over 5 years.
Attempting to also deduct the same VRS expenditure under another section — it is exclusive to 35DDA.

Reference: Section 35DDA

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