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Querist : Anonymous

Querist : Anonymous (Querist)

24 January 2015 I am a state government employee, I received 4.5 lacs as a earned leave encashment at the time of retirement, under which section I can get it fully exempt from income tax? What is the exempt limit for public sector unit employee?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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26 January 2015 U/s 10(10AA)(i) you can get full exemption.

Querist : Anonymous

Querist : Anonymous (Querist)

26 January 2015 But, while e-filing ITR 1, section 10(10AA) is not found, so where I have to mention this amount for getting fully exemption, my organization has deducted TDS on retirement EL encashment amount, please guide me.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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27 July 2024 Earned leave encashment is a type of retirement benefit that can be exempt from income tax under specific provisions of the Income Tax Act, 1961. Here's how you can address your situation:

### **1. Tax Exemption for Earned Leave Encashment**

**A. Exemption Under Section 10(10AA)**

- **Section 10(10AA)** of the Income Tax Act provides for the exemption of leave encashment at the time of retirement.

**B. Eligibility for Exemption**

- **For Central/State Government Employees**: Leave encashment received by government employees (Central or State) is fully exempt from tax under Section 10(10AA).
- **For Other Employees**: For employees of public sector companies or other private sector employees, the exemption is limited to the least of the following:
1. Actual amount received as leave encashment.
2. The amount calculated based on the formula: (15 days’ salary for every completed year of service) or the portion of the salary at the time of retirement.
3. ₹3,00,000.

### **2. Reporting in ITR**

**A. Exemption Reporting**

If you are a State Government employee, you are fully exempt from tax for the leave encashment amount, and this should be reflected in your income tax return:

- **ITR Form**: In ITR-1, there is no specific section for Section 10(10AA) as it is designed for straightforward income reporting. However, the exemption needs to be reported in the section where you report your income under "Exempt Income."

**B. Filling the Form**

1. **Enter the Exempt Amount in the Appropriate Section**:
- In **ITR-1**, you should enter the leave encashment amount under the "Income Exempt from Tax" section. This is generally available under the category of "Exempt Income" in the form.

2. **Provide Details in the "Schedule EI"**:
- In the "Schedule EI" (Exempt Income) of the ITR form, you should provide details of the exempt income, including the earned leave encashment amount. You need to mention the amount under the appropriate category.

3. **TDS Deduction**:
- Since your organization has deducted TDS on the leave encashment amount, ensure that you include the TDS details in the "Tax Paid and Verification" section of the ITR form. You will be able to claim a refund of the TDS deducted if the entire amount of leave encashment is exempt.

### **3. Practical Steps for Filing**

1. **Fill Out ITR-1 Form**:
- Go to the "Income" section and select "Exempt Income" to input the leave encashment details.

2. **Report TDS**:
- Enter the TDS details in the “Tax Paid and Verification” section to ensure that the deducted tax is considered, and a refund can be claimed if applicable.

3. **Ensure Documentation**:
- Keep all supporting documents related to your leave encashment and the TDS deduction for future reference in case of any scrutiny or query.

### **Summary**

- **Exemption**: As a State Government employee, your entire leave encashment amount is fully exempt under Section 10(10AA).
- **ITR Reporting**: Report the exempt amount under the “Exempt Income” section in ITR-1 and ensure the TDS deducted is correctly reported in the “Tax Paid and Verification” section.
- **Documentation**: Keep detailed records of the exemption and TDS for accuracy and future reference.

By following these steps, you can ensure that your leave encashment amount is fully exempt and properly reported in your income tax return. If you need more personalized guidance or encounter specific issues during e-filing, consulting a tax advisor or financial consultant would be beneficial.