Income tax on earned leave

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

26 December 2012 Hello Experts,

A 51 yrs old employee who worked with our organisation for 4 and half years & joined some other organization. As per Calculation his Earned Leave Encashment amount comes to Rs. 1,40,000/-. As per Income Tax rule Earned Leave Encashment is taxable or not.

@VaibhavJ

@VaibhavJ (Expert)
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26 December 2012 Hi,

Earned leave encashment received while on continuation of services is only taxable.

Leave encashment at the time of retirement / leaving job is exempt subject to 10(10AA)

Refer link for more details:

http://www.indiataxes.com/Information/incometax/contents/salaries/taxationofsalaries/sal_leave_sal.htm

Thanks//Vaibhav

Querist : Anonymous

Querist : Anonymous (Querist)

02 January 2013 Thanks for reply,

I would like to clear some issues in Earned Leave Encashment.

A person aged 44 yrs left Govt Undertaking Firm and recd Earned Leave amount of
Rs. 250000/-.

Then he Joined Pvt. Ltd firm a left it after 4 years and recd Earned Leave amount of Rs. 1,50,000/- (Is this amount is Taxable or not as he exceed the Rs. 3,00,000/- bracket of Tax on earned Leave amount).

Thanxs

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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31 July 2024 The taxation of earned leave encashment depends on several factors, including the type of employer (Government or Private), and the nature of the payment. Here’s how it works for both Government and Private sector employees:

### **1. Leave Encashment from Government Undertaking:**

- **Tax Treatment:** Leave encashment received by a Government employee is fully exempt from income tax. This exemption applies regardless of the amount received.
- **Section Reference:** The exemption is provided under Section 10(10AA)(i) of the Income Tax Act.

### **2. Leave Encashment from Private Sector:**

- **Tax Treatment:** Leave encashment received by a private sector employee is taxable, but there is a specific exemption available under Section 10(10AA)(ii).
- **Exemption Limit:** The exemption is limited to:
- The actual amount of leave encashment received.
- The amount equivalent to 10 months’ salary (basic salary + dearness allowance) as per the employee’s salary structure.
- ₹3,00,000 (as per the latest amendments).

### **Specific Case Details:**

1. **Leave Encashment from Govt. Undertaking Firm (₹2.50L):**
- **Exempt from Tax:** Since this amount is received from a Government undertaking, it is exempt from tax under Section 10(10AA)(i).

2. **Leave Encashment from Pvt. Ltd. Firm (₹1.50L):**
- **Taxable with Exemption:** Since this amount is received from a private sector firm, it is taxable but subject to the exemption limit under Section 10(10AA)(ii). Given that the exemption limit is ₹3L and your total leave encashment amount from the private sector (₹1,50,000) is less than this limit, the entire amount is exempt from tax.

### **Summary:**

- **Earned Leave Encashment from Government Sector:** ₹2.50L is fully exempt from tax.
- **Earned Leave Encashment from Private Sector:** ₹1.50L is also fully exempt from tax, as it is within the exemption limit of ₹3L

**Action Steps:**

- Ensure that you include these details in your income tax return under the appropriate section to claim the exemption.
- Maintain proper documentation of the leave encashment received and the respective employment details for any future reference or audit.

**Consult a tax professional** if you need further assistance with filing or if there are any complex circumstances in your case.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

31 July 2024 The taxation of earned leave encashment depends on several factors, including the type of employer (Government or Private), and the nature of the payment. Here’s how it works for both Government and Private sector employees:

### **1. Leave Encashment from Government Undertaking:**

- **Tax Treatment:** Leave encashment received by a Government employee is fully exempt from income tax. This exemption applies regardless of the amount received.
- **Section Reference:** The exemption is provided under Section 10(10AA)(i) of the Income Tax Act.

### **2. Leave Encashment from Private Sector:**

- **Tax Treatment:** Leave encashment received by a private sector employee is taxable, but there is a specific exemption available under Section 10(10AA)(ii).
- **Exemption Limit:** The exemption is limited to:
- The actual amount of leave encashment received.
- The amount equivalent to 10 months’ salary (basic salary + dearness allowance) as per the employee’s salary structure.
- ₹3L (as per the latest amendments).

### **Specific Case Details:**

1. **Leave Encashment from Govt. Undertaking Firm (₹2.50L):**
- **Exempt from Tax:** Since this amount is received from a Government undertaking, it is exempt from tax under Section 10(10AA)(i).

2. **Leave Encashment from Pvt. Ltd. Firm (₹1.50L):**
- **Taxable with Exemption:** Since this amount is received from a private sector firm, it is taxable but subject to the exemption limit under Section 10(10AA)(ii). Given that the exemption limit is ₹3L and your total leave encashment amount from the private sector (₹1.50L) is less than this limit, the entire amount is exempt from tax.

### **Summary:**

- **Earned Leave Encashment from Government Sector:** ₹2.50L is fully exempt from tax.
- **Earned Leave Encashment from Private Sector:** ₹1.50L is also fully exempt from tax, as it is within the exemption limit of ₹3L

**Action Steps:**

- Ensure that you include these details in your income tax return under the appropriate section to claim the exemption.
- Maintain proper documentation of the leave encashment received and the respective employment details for any future reference or audit.

**Consult a tax professional** if you need further assistance with filing or if there are any complex circumstances in your case.