Leave encashment

This query is : Resolved

Tamas (Querist)
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07 December 2014 For the purpose of exemption of Leave Encashment of an PSU (Nationalised Bank) employee is section 10(10AA)(i) is valid ?

Will he be treated as Govt Employee or Non Govt Employee??

Tamas

Tamas (Querist)
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12 December 2014 please tell for leave encashment purpose PSU is treated as Govt or Non-Govt ???

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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02 August 2024 For tax purposes in India, leave encashment is governed by Section 10(10AA) of the Income Tax Act. The treatment of leave encashment for employees of Public Sector Undertakings (PSUs) such as nationalized banks depends on specific sections of this provision.

Here’s a breakdown:

### **Section 10(10AA) and Leave Encashment**

- **Section 10(10AA)(i)**: This section provides tax exemptions for leave encashment received by employees of the government. Specifically, it exempts the leave encashment amount received at the time of retirement or resignation for government employees.

- **Section 10(10AA)(ii)**: For non-government employees, including those working in PSUs (like nationalized banks), this section provides tax exemptions subject to certain conditions. For non-government employees, the exemption is limited to:
- The amount of leave encashment received (as per rules or company policy), and
- An amount not exceeding ₹3,00,000 (from FY 2018-19 onwards).

### **PSU Employees: Government vs. Non-Government Classification**

- **PSU Employees**: Employees of PSUs, such as nationalized banks, are generally considered as non-government employees for tax purposes. Although PSUs are owned by the government, they are not considered government departments or entities. Therefore, for the purpose of leave encashment, they fall under the non-government employee category.

### **Tax Treatment for PSU Employees**

For a PSU employee, the leave encashment will be treated as non-government for tax purposes. Hence:

- The tax exemption under Section 10(10AA)(i) does not apply to PSU employees.
- Instead, the exemption under Section 10(10AA)(ii) is applicable, which is subject to the ₹3,00,000 limit and other conditions as specified by the Income Tax Act.

In summary, PSU employees are treated as non-government employees for the purpose of leave encashment, and the tax exemptions available under Section 10(10AA) are applied accordingly.

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