leave encashment

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 July 2010 accummulated leave encashment recieved by the legal hiers after the death of government employee is taxable or not.

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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11 July 2010 Leave Encashment ...............................................................
Leave Encashment is taxed differently for following types of employees.
Government employees: Leave encashed during the continuation of service is taxable .
Leave encashed at the time of retirement or superannuation (leaving the job) is exempt from tax.

Non-Government employees: Leave encashed during the continuation of service is taxable.
In case of leave encashed at the time of retirement or superannuation (leaving the job) the exemption is limited to the least of the following:

10 month's average salary;
Rs. 2,40,000;
Amount actually received
Cash equivalent of leave salary standing to his credit not exceeding 30 days for each year of actual service .
The limit on exemption is applied on the total payment received towards leave encashment from two or more employers, in the same year or in different years.

Salary means last drawn salary and includes basic salary and dearness allowance if terms of employment so provide and also includes commission based on a fixed percentage of turnover.

Average Salary is calculated on the basis of average salary for the 10 months immediately preceeding the retirement or superannuation.

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