Payment establishes the cohort
Section 52(1), Table serial number 2, of the Income-tax Act, 2025 provides five equal tax-year instalments for amounts paid to an employee in connection with voluntary retirement under a voluntary-retirement scheme. The initial year is the tax year of payment. This article concerns employer computations for tax year 2026–27 onwards, checked on 28 October 2026; it does not substitute new section numbers into FY 2025–26 / AY 2026–27 returns. Income-tax Act, 2025: section 52(1), (4), (6) and (7).
Separate scheme eligibility from arithmetic
Obtain the approved scheme, employee eligibility, accepted retirement terms and payment evidence. A payroll caption saying VRS does not prove the statutory connection. Distinguish salary arrears, ordinary retirement dues, gratuity and other settlements on their actual character. These examples assume the relevant amounts qualify; they do not establish eligibility merely because the employer calls the entire exit package compensation. Income-tax Act, 2025: section 52(1), (4), (6) and (7).
Provision and payment can have different dates
The employer's financial statements may recognise a liability before cash is paid. A book provision is not itself the payment-year trigger in the table. Preserve an employee-wise reconciliation of opening liability, additions, payment and closing liability, and a separate tax schedule for each qualifying payment cohort. A deferred accounting charge also does not determine the statutory annual instalment. Income-tax Act, 2025: section 52(1), (4), (6) and (7).
Do not restart the five-year clock on the closing balance
Calculate each cohort's annual amount from its qualifying original payment, then retain the remaining number of instalments. The unclaimed balance is not a fresh five-year base each year. Separate payments in later tax years create their own schedules. Maintain adequate precision and resolve final-year rounding without exceeding the qualifying total. Income-tax Act, 2025: section 52(1), (4), (6) and (7).
Use one book-to-tax bridge
Where books charged the entire payment but tax allows one-fifth, replace the book expense with the tax instalment through a single reconciled adjustment. Where the liability was charged previously and payment only debits that liability, current book expense may be zero while tax recognition begins. Carry forward the evidence of the earlier adjustment. Section 52(4)(b) prohibits deduction of the same covered expenditure under another provision; do not also claim the full amount as ordinary business expenditure. Income-tax Act, 2025: section 52(1), (4), (6) and (7).
Reorganisation and employee tax require separate reviews
Section 52(6) addresses specified business reorganisation before the VRS deduction period expires: the successor continues the provision as applicable and the predecessor has no deduction for the reorganisation tax year. Verify the defined route and actual conditions rather than restarting five years. An employee's exemption or withholding result is a different question from this employer amortisation; this guide supplies no automatic employee exemption or payroll withholding conclusion. Income-tax Act, 2025: section 52(1), (4), (6) and (7).
Applicable primary references
Income-tax Act, 2025: section 52(1), (4), (6) and (7)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: A new paid cohort
Assume qualifying payment ₹25,00,000 in tax year 2026–27. One-fifth is ₹5,00,000 annually for five successive tax years, beginning 2026–27. After the first instalment, unallowed expenditure is ₹20,00,000.
Illustrative example 2: Only part of a provision is paid
A qualifying scheme liability is ₹30,00,000, but only ₹10,00,000 is paid during 2026–27. Under the stated payment facts, the new cohort's annual instalment is ₹2,00,000. The unpaid ₹20,00,000 does not enter that payment cohort.
Illustrative example 3: Overlapping payment cohorts
Assume ₹25,00,000 is paid in 2026–27 and ₹15,00,000 in 2027–28. In 2027–28 the respective instalments are ₹5,00,000 and ₹3,00,000, totalling ₹8,00,000. Keep the different final years visible.
Illustrative example 4: Books expense the whole payment
A qualifying ₹25,00,000 payment is fully charged to current book profit. Tax instalment is ₹5,00,000, so the adjustment is an add-back of ₹20,00,000, assuming no other difference. Do not additionally add back the full ₹25,00,000 without recording the ₹5,00,000 deduction.
Illustrative example 5: Payment against an earlier provision
Assume current payment ₹10,00,000 debits an earlier provision and current book expense is zero. With the earlier provision properly excluded for tax, the new annual tax deduction is ₹2,00,000. Current adjustment is therefore a ₹2,00,000 reduction in book profit, not another provision add-back.
Illustrative example 6: Finish the original schedule
An established ₹25,00,000 cohort has already received four valid ₹5,00,000 instalments. Its remaining amount and final instalment are ₹5,00,000. Dividing that closing amount by five would incorrectly claim only ₹1,00,000 and extend the original schedule.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the tax period | 2025 Act versus earlier-year return distinction |
| 2 | Identify the scheme | Executed and approved VRS terms |
| 3 | Classify each settlement component | Qualifying payment versus other employee dues |
| 4 | Prove actual payment | Bank and employee settlement evidence |
| 5 | Reconcile book liabilities | Opening provision, additions and payments |
| 6 | Create payment-year cohorts | Original amount and five-year calendar |
| 7 | Calculate annual instalments | One-fifth and precision check |
| 8 | Bridge book and tax expense | Single adjustment with earlier-year evidence |
| 9 | Check reorganisations and duplicate claims | Defined succession route and section 52(4)(b) |
| 10 | Preserve the closing schedule | Instalments used, balance and final year |
Sixteen practitioner FAQs
1. Which provision governs these examples?
Section 52 of the 2025 Act, specifically the VRS row in subsection (1).
2. Is this an AY 2026–27 return guide?
No. The stated current period is tax year 2026–27 under the newer Act.
3. What starts the VRS instalment period?
The tax year in which the qualifying payment is made.
4. Does a provision automatically start it?
No. Reconcile the provision to the payment trigger.
5. How many instalments are prescribed?
Five equal tax-year instalments under the table.
6. Does each later payment need its own cohort?
Yes, identify its payment year and resulting schedule.
7. Can the closing unallowed balance be re-amortised over five new years?
No. Preserve the original cohort's remaining instalments.
8. Is every employee-exit payment a VRS amount?
No. Establish the actual statutory connection and classify other dues separately.
9. What if books already charged the entire amount?
Reconcile that charge with the current tax instalment in one adjustment.
10. What if payment merely clears an earlier provision?
The book expense may be zero; establish the earlier tax treatment and current instalment separately.
11. Can ordinary business expenditure be claimed as well?
Section 52(4)(b) prohibits another-provision deduction for the same covered expenditure.
12. Does employer amortisation prove employee exemption?
No. Employee taxation is a separate analysis.
13. Does this settle payroll withholding?
No. Determine withholding independently under the applicable law and facts.
14. Does qualifying reorganisation restart the schedule?
Section 52(6) provides continuation, not a new full five-year clock.
15. Can both predecessor and successor claim the reorganisation-year VRS instalment?
The provision denies the predecessor that year's deduction in the specified case; verify the successor's applicable continuation.
16. What is the strongest closing evidence?
Employee payment records linked to cohort-wise prior claims, current allowance and remaining years.
Conclusion
Track employer VRS payments by payment-year cohort under section 52, separating five-year tax instalments from book provisions and employee exemption questions.