Tuesday, January 24, 2012

Leave Salary encashment Exemption Calculation/calculator


on Tuesday, January 24, 2012

Dear Friends ,
In this post we are discussing issues and provisions related to Leave Encashment /Leave salary given to employees and Tax due on it and How much of such amount is taxable/exempted under Income Tax Act.

Meaning of Earned Leave
Normally in pay package of the employee two day or so is allowed as leave per month  and if this leave is not availed then it will be accumulated subject to certain maximum limit and at the time of retirement/otherwise or on leaving the employer, pay equivalent to leave remaining unutilised in the employee account will be paid to employee. (rules varies from organisation to organisation).This type of leave is called Earned Leave and amount received in lieu of this unutilised amount is called leave salary/leave encashment.

(A)Leave salary received by any employee during the period of  service.
  • Leave salary received by any employee during the period of  service is fully Taxable.however relief under section 89 read with rule 21A can be claimed (Circular no 431 Dated September 12,1985)
(B)Leave Salary to At the time of Retirement /superannuation or otherwise.
 (i) Leave salary to Central/State Government employee

  •  Leave salary given to Central/State Government employees at the time of retirement /superannuation in respect of period of earned leave at his credit ,is fully exempted.{section 10(10AA)(i)}
(ii)Leave salary given to  other employee (non Central/State Government employee is exempted as per detail below.{section 10(10AA)(ii)}
Least of following will be exempted.
  1. Leave encashment Actually received.
  2. Last 10 Month average salary .(average salary explained below)
  3. Maximum amount fixed by the Government from time to time (given below)
  4. Cash equivalent of salary in respect of the period of earned leave to the credit of the employee only at the time of retirement whether on superannuation or otherwise calculated maximum by 30 days maximum for every year of actual service rendered to employer from whose he has retired.
Maximum Amount Specified to be exempted From time to time:The amount has been last revised in 1998 and after that period DA of the employee has been increased by 100 % but this amount has not been increased then so even by rate of inflation also this amount should increased to 6.00 lacs at least.what do you think????.It seems from the cahrt that in period 1986 to 1987 the maximum amount was linked with the DA increase but after that periodical review has been started. In my view this amount should be linked to DA increase and should be declared at least in one year like Cost inflation index used for capital gain calculation.



Meaning of Average Salary :Average Salary drawn during the period of 10 Months immediately preceding the retirement /superannuation .Salary means basic pay plus dearness allowance if term of payment so allowed ,plus commission based on fixed % of turnover achieved by the employee as per term of employment.

(iii)Leave Salary paid to Legal heirs of deceased employee in respect of privilege leave standing to the credit of such employee at the time of death is not taxable .

(iv)Leave salary received by family of Government employee who died in harness ,is not taxable in hands of the recipient.

Scope of this sction also applicable at voluntary retirement as state by Madras High Court in CIT Vs. R.V.Shahney(1986) 159 ITR160 .

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  1. Before 1-1-1982 amount 25500 instead of 2550

    ReplyDelete
  2. whether there is any proposal to increase the exemption limit of leav salary to rs.10 lakh

    ReplyDelete
  3. if leave encashment amount above Rs.3.00 lacs is taxable at the time of retirement

    ReplyDelete
    Replies
    1. least of four is exempted as explained above to pls provide complete details . However exemption limit maximum is 3 lacs

      Delete
  4. what is the next step to do if I got form 16 from my company?? pls guide me.

    ReplyDelete
    Replies
    1. Next step is file your income tax return , you may download income tax return form from here.

      http://www.simpletaxindia.net/2012/04/income-tax-return-forms-ay-2012-13.html

      Delete
  5. Which ITR form to fill in case I want exemption under section 10(10AA)(ii) - leave encashment post retirement (BMC is the employer).

    I'm receiving pension from BMC, and there is no other source of income.

    Thanks

    ReplyDelete
    Replies
    1. itr-1, fill pension income after exemption at sr no -1

      Delete
    2. Appreciate prompt response on my query. Thanks a lot..

      Delete
    3. I filled ITR1 had submitted return online last sunday, i.e. 22d July 2012.
      However, I've not yet received ITRV form, or confirmation of successful submission of Efile returns on mail.
      Is there any other way to download ITRV form, as I need to post it to CPC at B'lore.

      Thanks,

      Delete
    4. check step by step guide hre

      http://www.simpletaxindia.net/2007/11/how-can-i-know-print-itr-v-after-e.html

      Delete
    5. thanks again, the promptness with which you respond is truly appreciated.

      Delete
  6. I am getting superannuated by 31st March'13.
    Can i show leave salary income on retirment in 2013-14 income.

    ReplyDelete
    Replies
    1. As per Govt rule /leave encasement is payable on next day of retirement .so you should ask your employer to make payment on or after 01.04.2013. so as per rule also leave salary is taxable in 2013-14 unless you receive it in 2012-13.

      so don't receive cheque on retirement function or ask employer to issue post dated cheque.

      Delete
  7. Dear Sir,
    please let me know leave encashment is calculating on basic salary or basic + hra amount

    Regards
    Sidhartha

    ReplyDelete
  8. Dear Sir,
    please let me know whether leave encashment is calculation on basic salary or basic salary + hra amount

    regards
    Sidhartha

    ReplyDelete
  9. as per companies' policy.

    regards
    Surgyan

    ReplyDelete
  10. I have 15000/-Rs to invest. Why should i chose to invers in PPF fund?.What is percentage of return and benifit?.

    ReplyDelete
  11. If any recovery has been done from salary on account of any particular reason in any of the ten months prior to month of retirement,the calculation of average pay plus DA should be based on actual pay plus DA drawn or the notional pay plus DA of the month during which recovery has been made should be considered for calculating the exempted portion?

    ReplyDelete
  12. I am currently working with a ltd. copmpany and i have so many leave balance can i in cash those leaves?

    ReplyDelete
    Replies
    1. its depends upon your company's policy

      Delete
  13. I have taken Vol Retirement from PSU Co. (Govt of India undertaking) and leave encashment received Rs. 4.65 lacs for 218 days. Whether above amount fully exempted from IT ?

    ReplyDelete
    Replies
    1. you are eligible for exemption maximum up to 300000 .further other limits are already explained above

      Delete
  14. I have received Leave Encasement Rs.682196.00 for 290 Days on Retirement in Jan'13.
    How much amount is taxable (after deducted of Rs. 300000.00 from taken amount) or fully taxable .
    Reply

    ReplyDelete
    Replies
    1. At time of retirement, Leave encashment limit is Rs.300,000/00, for employees of "PRIVATE COMPANIES".What about "Public Sector
      Employees" whose salaries & perks are fixed by 6th.Pay Commission along with "Government Employees",who get full tax exemption for Leave Encashment ?

      Delete
  15. Any comments for posting of Anonymous on July 25,2013 ? A very valid question.How can Public Sector employees, whose pay and perks are fixed by 6th. Pay commission, like "Government" employees, not enjoy the benefit of tax exemption above 300,000/00 like Government servants.

    ReplyDelete
  16. Dear ,

    I am resigning from my job. And my organization is not giving me my leave salary. Is this right or wrong ?

    ReplyDelete
  17. Dear,

    I am resigning from my current job. And my organization is not providing my my leave salary. Is this right or wrong ?

    ReplyDelete