The Income-tax Rules, 2026
Rule 20: Procedure for purposes of section 19 [Table: Sl.No.12] relating to voluntary retirement or voluntary separation.
20. (1) Subject to the conditions specified in sub-rules (2) and (3), the amount received at the time of voluntary retirement or voluntary separation can be claimed as deduction for the purposes of section 19 [Table: Sl.No.12] by an employee of—
(i) a public sector company; or
(ii) any other company; or
(iii) an authority established under a Central Act or State Act or Provincial Act; or
(iv) a local authority; or
(v) a co-operative society; or
(vi) a University established or incorporated by or under a Central Act or State Act or Provincial Act, and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or
(vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961); or
(viii) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or
(ix) such other institute of management as the Central Government may, by notification, specify in this behalf.
(2) The deduction under sub-rule (1) is allowable only if the scheme of voluntary retirement framed by the aforesaid company or authority or co-operative society or University or institute, as the case may be, or if the scheme of voluntary separation framed by a public sector company, (herein referred to as ‘the scheme‘) is in accordance with the following requirements:–
(i) the scheme applies to an employee who has completed ten years of service or completed forty years of age;
(ii) the scheme applies to all employees (by whatever name called) including workers and executives of a company or of an authority or of a co-operative society, as the case may be, excepting directors of a company or of a co-operative society;
(iii) the scheme has been drawn to result in overall reduction in the existing strength of the employees;
(iv) the vacancy caused by the voluntary retirement or voluntary separation is not to be filled up;
(v) the retiring employee of a company shall not be employed in another company or concern belonging to the same management; and
(vi) the amount receivable on account of voluntary retirement or voluntary separation of the employee does not exceed either A or B, where,–
A= 3*N*S;
B = M*S; and
N= Number of completed years of service;
M = balance months of service left before the date of his retirement on superannuation;
S= salary at the time of retirement.
(3) In case an amount is received by an employee of a public sector company under the scheme of voluntary separation framed by such public sector company, the requirement of sub-rule (2)(i) shall not be applicable.
(4) In this rule, the expression “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
