Leave encashment

Tax queries 621 views 6 replies
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CA Final Student
36 Points Joined October 2009

Dear Members,

I have a certain query regarding Leave Encashment tax implications. 

I have a Private limited company, we have a provision of carrying forward the unavailed leaves to the next year instead of giving cash to the employees. Is there any tax implication on this policy.

Regards

Diwakar

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On 04 January 2013 at 12:01 Report
Replies (6)
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DGM (F & A)
14068 Points Joined July 2007

when leave is carry forward then there is no tax implecation on that.

because no payment was made

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On 04 January 2013 at 12:40
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CA Final Student
36 Points Joined October 2009

Dear Prashant,

 

Thank you for your reply. Can you please give me the Bare Act regarding this

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On 04 January 2013 at 12:54
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studying final
830 Points Joined December 2007

though i didnt get u, but let me help u

Meaning of Earned Leave

Normally in pay package of the employee two day or so is allowed as leave per month  and if this leave is not availed then it will be accumulated subject to certain maximum limit and at the time of retirement/otherwise or on leaving the employer, pay equivalent to leave remaining unutilised in the employee account will be paid to employee. (rules varies from organisation to organisation).This type of leave is called Earned Leave and amount received in lieu of this unutilised amount is called leave salary/leave encashment.

(A)Leave salary received by any employee during the period of  service.

Leave salary received by any employee during the period of  service is fully Taxable.however relief under section 89 read with rule 21A can be claimed

B)Leave Salary to At the time of Retirement /superannuation or otherwise.

Leave salary given to  other employee (non Central/State Government employee is exempted as per detail below.{section 10(10AA)(ii)} Least of following will be exempted.

 

  • Leave encashment Actually received.
  • Last 10 Month average salary .(average salary explained below)
  • Maximum amount fixed by the Government from time to time (given below)
  • Cash equivalent of salary in respect of the period of earned leave to the credit of the employee only at the time of retirement whether on superannuation or otherwise calculated maximum by 30 days maximum for every year of actual service rendered to employer from whose he has retired.
Leave encashment can be claimed u/s 43 b of income tax act, in the year of payment by employer

 

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On 04 January 2013 at 13:20
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DGM (F & A)
14068 Points Joined July 2007

Dear Diwakar

I don't think Bare Act will solve this.  Income tax apply on leave encashment when it is received by employees. So when employee doesn't receive any money how can you make it taxable to them. so on commulative leave there is no tax. yes, when it will be encashed then it will be taxable according to income tax act.

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On 04 January 2013 at 13:26
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studying final
830 Points Joined December 2007
Originally posted by : CA Prashant Gupta

Dear Diwakar

I don't think Bare Act will solve this.  Income tax apply on leave encashment when it is received by employees. So when employee doesn't receive any money how can you make it taxable to them. so on commulative leave there is no tax. yes, when it will be encashed then it will be taxable according to income tax act.

completely agree with this comment and my information will be sufficient for this question. thats it
 

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On 04 January 2013 at 13:49
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CA Final Student
36 Points Joined October 2009

Dear Members,

Thank you for your prompt reply. Your information has solved my queries. 

 

Thank You

Regards

Diwakar

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On 04 January 2013 at 13:56


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