Income tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 August 2011 plz explain the concept of leave encashment and its practical applications and what points are to be kept in mind.

CMA. Murali

CMA. Murali (Expert)
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11 August 2011 Leave Encashment received during the course of service is fully taxable for Govt and Non-Govt Employee.

Leave Encashment received at the time of retirement is fully exempt for Govt Employee as per sec 10(10aa)(i).

Leave Encashment received at the time of retirement is partly exempt for Non-Govt Employee as per sec 10(10aa)(ii).
Encashment of earned leave on retirement would however, be exempt to the extent of least of:

i. 10 months salary calculated on the basis of last 10 months average salary or

ii. Rs. 3,00,000

iii. Amount equivalent to earned leave

iv. Actual amount paid by the employer

Entitlement to earned leave not to exceed 30 days for every year of actual service.

Limits provided for aggregate maximum from any number of employers.

Encashment of earned leave on retirement would be wholly exempt for employees of Central/State Government.