Expenditure incurred on Voluntary Retirement Scheme (VRS) is allowed as a deduction under Section 35DDA in a phased manner, rather than a one-time deduction.

✅ Deduction Allowed under Section 35DDA

• The total amount of VRS compensation paid to employees is allowed as a deduction over 5 years.

• 20% of the total VRS expense is deductible each year for five consecutive years, starting from the year in which the payment is made.

• Deduction is available only if the payment is actually made to the employees opting for voluntary retirement.

⛔ When Deduction is NOT Allowed?

❌ If the business fails to make the payment to employees, deduction is not allowed.
❌ If the business claims the entire amount in one year, the excess claim may be disallowed by tax authorities.
❌ If the employee retires under any scheme other than VRS, this section does not apply.