Exemption on Voluntary Retirement Scheme 

Purpose

This process describes the computation of the exemptions, on the amount received by an employee under a Voluntary Retirement Scheme (VRS).

Process Flow

Voluntary Retirement Service Taxationpayroll function (INVRS) computes exemptions on the VRS at the time of termination. It computes the exemption on VRS as a minimum of the following factors:

...

       1.      VRS payments received

       2.      Tax limit

       3.      Number of months of salary payable for every completed year of service

       4.      Product of the Number of months of Salary from VRS date to Normal Retirement Date and the Current nominal basis

VRS payments received

Gratuity contribution taxationpayroll function (INGTX) checks the internal table IT for the VRS wage type and obtains the amount received as VRS Payment.

The Termination Workbench computes the amount payable as VRS and stores the wage type for VRS in the Additional Payments infotype (0015).

You can also directly enter the VRS amount in the Additional Payments infotype (0015).

...

       1.      During payroll processing in the termination period, the Processing request for additional payments payroll function (P0015) reads the Additional Payments infotype (0015) and stores the wage type for VRS in the internal table.

       2.      Before checking the internal table for the VRS wage type and amount, the Voluntary Retirement Service Taxation payroll function (INVRS) checks the table view Taxability of wage types (V_T7INT9) for the VRS tax code, SVRS and the wage type that is associated with this tax code. Voluntary Retirement wage type (MVR0) is the model wage type that is associated with tax code SVRS.

After identifying the VRS wage type, associated with the tax code SVRS, the Voluntary Retirement Service Taxation payroll function (INVRS) looks for this VRS wage type in the internal table and obtains the VRS payment amount.

·         To identify the tax code for VRS and the VRS wage types associated with the tax code, the Voluntary Retirement Service Taxation payroll function (INVRS) checks the table view Taxability of wage types (V_T7INT9). It also determines the eligibility for VRS through Pay Scale Grouping for Allowances from the table view Reimbursement Allowances Perks - eligibility and calculation (V_T7INA9).

·         Ensure that you have configured the eligibility wage type (MVR0) as Cessation Payment in the table view Reimbursement Allowances Perks - eligibility and calculation (V_T7INA9). Cessation Payment is an option under the Reimbursement/ allowance/perk indicator.

Tax limit

...

       1.      Voluntary Retirement Service Taxation  payroll function (INVRS) checks for the maximum amount of VRS that can be exempt from tax. The maximum limit is as specified by the authorities. You can view the maximum limit for the tax code SVRS using the table view Taxability of wage types (V_T7INT9).

       2.      If the employee received an exemption on the VRS amount from a previous employment, Voluntary Retirement Service Taxation payroll function (INVRS) will not process an exemption on VRS in the current employment.

You can maintain the VRS exemption, claimed in a previous employment using the Previous Employment Tax Details infotype (0580). The VRS Exemption wage type (/4V9) stores the exemption amount previously claimed.

Number of months of salary for every completed year of service

The number of months of salary for every completed year of service is computed as the product of 1, 2 and 3:

...

       1.      No. of years of continuous service

The Termination Workbench calculates the number of years of service based on the employment Start Date and End Date. In the Termination Workbench, you have the option of overwriting the value computed by the Termination Workbench.

You can also make the payment on VRS through the Additional Payments infotype (0015).

       2.      Multiplication Factor for VRS

The Multiplication factor is a predefined number of months of salary, taken for each year of service. The Month Factor Pre VRS Service constant (MFPVR) of table view Payroll Constants (V_T511K) stores the Multiplication factor for VRS and as of year 2001-2002, the value of the factor is three.

       3.      Latest Nominal basis

The system takes the Basic and Dearness Allowance components of an employee's salary as the VRS basis. The Voluntary Retirement Bas. wage type (/129) stores this computed VRS basis amount. The Nominal Cumulations rule (IN72) checks the Basic and Dearness Allowance wage types for the Processing Class 72 and cumulates them into the Voluntary Retirement Bas. wage type (/129).

The Voluntary Retirement Service Taxation payroll function (INVRS) takes the last nominal basis as the current nominal basis and for obtaining the same, it makes use of the Last nominal basis rule (INLN).

Product of the Number of months of Salary from VRS date to Normal Retirement Date and the current nominal basis

The system computes the remaining period of service by taking the difference between the:

·         Date of actual termination

·         Date on which the employee would have normally retired, if the employee had not opted for the VRS

Voluntary Retirement Service Taxation payroll function (INVRS) computes the value by dividing the remaining number of days by 30.5 and then rounding off the value to the nearest lower integer.

You can create and maintain the date of normal retirement in the Date Specifications infotype (0041). Ensure that you select the Date Type as N0.

After selecting the minimum of the four exemption factors, the Voluntary Retirement Service Taxation payroll function (INVRS) generates the Voluntary Ret. Exemption wage type (/4E6), in which it stores the exemption on VRS.

Voluntary Retirement Service Taxation  payroll function (INVRS) computes exemption on VRS only when at least one of the following conditions applies:

·         The employee has completed 10 years of service in the company. The Min Age for VRS exemption constant (VRSYR) of table view Payroll Constant (V_T511K) stores the value for the number of years in service.

·         The employee has reached the age of 40.

The Determine VRS Eligibility rule (INVR) performs the check for these two conditions, and processes the Voluntary Retirement Service Taxation payroll function (INVRS) only when the employee meets at least one of the two conditions.

Retroactive Computation

Voluntary Retirement Service Taxation  payroll function (INVRS) computes exemption on VRS only in the month of termination.

Result

When you process payroll for the employee in a period after termination, the system will import the VRS exemption results from the termination period into the period under consideration.

The Processing the last results table payroll function (PLRT) makes use of the B/F Termination related exemptions for Payroll after termination rule (INTT) to import the results. The rule checks the Last Results Table (LRT) for the VRS wage type and imports them into the current period. The system does not make any changes in the imported results.