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Leave encashment

04 September 2020

my client is a bank employee retired from service. he received leave encashment an amount 9f rs. 5 lakhs. is it fully exempt from tax

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CA Sunil Kumar (Chartered Accountant) (4524 Points)
Replied 04 September 2020

The exemption is to be limited to the least of following:

(a) Cash equivalent of unutilized earned leave (earned leave entitlement can not exceed 30 days for every year of actual service)

(b) 10 months average salary

(c) Leave encashment actually received. This is further subject to a limit of Rs 3,00,000 for retirements after 02.04.1998.

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Sagar Patel (Tax and Business Consultant) (11611 Points)
Replied 06 September 2020

(a) Government employees: Leave salary received at the time of retirement is fully exempt from tax.
(b) Non-government employees: Leave salary received at the time of retirement is exempt from tax to the extent of least of the following:
(i) ` 3,00,000
(ii) Leave salary actually received
(iii) 10 months’ salary (on the basis of average salary of last 10 months)
(iv) Cash equivalent of leave (based on last 10 months’ average salary immediately preceding the date of retirement) to the credit of the employee at the time of retirement or death. Earned leave entitlement cannot exceed 30 days for every year.

Notes:Leave salary received during the period of service is fully taxable.

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