The income tax applicability for leave encashment for private employees is subject to tax . But Exemption to certain extent is available under Section 10(10AA): The related provisions are given below.
A part of the leave encashment income at the time of superannuation or resignation is exempt from income tax payment. This exemption is applicable to the lowest of the below amounts:
Rs. 3 lakh Actual leave encashment amount Average salary (basic salary + dearness allowance) of the last 10 months before the employee’s retirement or resignation Cash equivalent of pending leave days. The leave basis is a maximum of 30 days leave for every year of service.
I explain with the example. Leave salary earned : Rs.720000 Basic + DA - 36000 Number of years of service : 25 no of days eligibility per year : 30 days Leave salary days : 200 days Act
Whichever is lower of the following 1. rS.3,00,000 2. Rs.7,20,000 ( 200 days x rs.36000) 3. 10 Months x rs.36000 = rS.3,60,000 4. 25 Years x 30 days = 750 days less availed 550 days = 200 days x 1200 ( 36000/30) = 240000
Exemption amount lowest of the above is Rs.240000 and taxable amount is for Rs,480000 ( 720000-240000)
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