A Voluntary Retirement Scheme, or VRS, is an option some employers offer — often during restructuring or downsizing — that allows eligible employees to opt for early, voluntary retirement before reaching the company's normal retirement age, typically in exchange for a lump sum compensation package calculated based on years of service and salary.
For employees, VRS can be an attractive option if they're financially prepared for early retirement or wish to pursue other opportunities, and compensation received under a genuine VRS scheme meeting specified conditions can qualify for a tax exemption up to a certain limit under the Income Tax Act. However, opting for VRS means giving up years of potential future salary and continued retirement benefit accumulation, so it's a decision that benefits from careful financial planning before accepting.