Leave encashment by bank employees
Vijay Mohan (637 Points)
19 February 2021
leave encashment at the time retirement by bank employees is fully exempt.
13 Replies
Kapadia Pravin
(17259 Points)
Replied 19 February 2021
There is a provision of maximum number of days for Leave encashment.
Krishna Chaudhary
(Accountant)
(4531 Points)
Replied 20 February 2021
Amout is exempted subject to provision of income tax
provisions are
At the time of retirement or resignation, the employee can avail encashment through their accumulated paid leave. However, there are various conditions depending upon the type of organization in which the employee has worked.
When the employee has worked in the central or state government organization, they can fully claim for their paid leave encashment and that too with full exemption from tax.
In the case of employee’s death before the leave encashment, their legal heirs can receive total leave encashment on behalf of the deceased. No income tax will be charged on the amount received by them.
Employees working in the private sector can receive paid leave encashment at the time of retirement or resignation.Maximum tax exemption amount is Rs 3, 00,000 for the leave encashment otherwise amount exceeding this value is taxable. The calculation of exempt leave encashment os as per section 10(10AA)
Tax Exemption Under Section 10(10AA)
In such a case, the following points are considered in order to receive the exemption under section 10(10AA).
The leave encashment amount actually received is taken into account
The average salary of 10 months. The salary includes basic salary and dearness allowances. Also, the commission received is considered. The salary of 10 months actually considered is on the basis of salary received during the 10 months preceding their retirement or resignation.
Even if the employee has accumulated number of leaves in a year, the organization will consider only a maximum of 30 days of leave a year for the encashment process. According to it, the total number of paid leaves will be calculated altogether during the retirement or resignation and then encashment will be processed further. Suppose a person has not utilized all the paid leaves and it accounts for 45 days still the organization will only consider 30 days of paid leave for encashment at the time of resignation or retirement.
In the case of leave encashment during the employment period the amount received will totally be taxable in all forms. But according to Section 89, Income Tax Act, the employee can claim for tax relief from their leave encashment amount.
For employees who have retired after 1998, their leave encashment amount is subjected to a maximum limit of Rs. 3, 00,000 to be received which is specified by the government. When the actual amount to be received will be more than Rs. 3, 00,000, then 3, 00,000 will be received as the encashment amount and the remaining amount will be received in the salary account which will be taxable. This case applies only for non-government employees.
The legal heirs of deceased employees at the time of leave encashment can receive the amount without any form of tax deduction from the amount.
In case of resignation or termination, both government and non-government employees are held to pay the tax on the amount received from paid leave encashment because the amount at the time is considered as income from salary by the income tax department. The rate of tax to be paid is applied same as during income tax on salary.
provisions are
At the time of retirement or resignation, the employee can avail encashment through their accumulated paid leave. However, there are various conditions depending upon the type of organization in which the employee has worked.
When the employee has worked in the central or state government organization, they can fully claim for their paid leave encashment and that too with full exemption from tax.
In the case of employee’s death before the leave encashment, their legal heirs can receive total leave encashment on behalf of the deceased. No income tax will be charged on the amount received by them.
Employees working in the private sector can receive paid leave encashment at the time of retirement or resignation.Maximum tax exemption amount is Rs 3, 00,000 for the leave encashment otherwise amount exceeding this value is taxable. The calculation of exempt leave encashment os as per section 10(10AA)
Tax Exemption Under Section 10(10AA)
In such a case, the following points are considered in order to receive the exemption under section 10(10AA).
The leave encashment amount actually received is taken into account
The average salary of 10 months. The salary includes basic salary and dearness allowances. Also, the commission received is considered. The salary of 10 months actually considered is on the basis of salary received during the 10 months preceding their retirement or resignation.
Even if the employee has accumulated number of leaves in a year, the organization will consider only a maximum of 30 days of leave a year for the encashment process. According to it, the total number of paid leaves will be calculated altogether during the retirement or resignation and then encashment will be processed further. Suppose a person has not utilized all the paid leaves and it accounts for 45 days still the organization will only consider 30 days of paid leave for encashment at the time of resignation or retirement.
In the case of leave encashment during the employment period the amount received will totally be taxable in all forms. But according to Section 89, Income Tax Act, the employee can claim for tax relief from their leave encashment amount.
For employees who have retired after 1998, their leave encashment amount is subjected to a maximum limit of Rs. 3, 00,000 to be received which is specified by the government. When the actual amount to be received will be more than Rs. 3, 00,000, then 3, 00,000 will be received as the encashment amount and the remaining amount will be received in the salary account which will be taxable. This case applies only for non-government employees.
The legal heirs of deceased employees at the time of leave encashment can receive the amount without any form of tax deduction from the amount.
In case of resignation or termination, both government and non-government employees are held to pay the tax on the amount received from paid leave encashment because the amount at the time is considered as income from salary by the income tax department. The rate of tax to be paid is applied same as during income tax on salary.
Vijaykumar K
(2 Points)
Replied 26 August 2021
Under which sec Leave encashment is fully exempted for the Government employees
satyanarayana buddana
(5 Points)
Replied 06 September 2021
I heard that leave encashment by bank employees at the time of retirement is full exempt. Can anyone provide circular no. Or sec.no Etc., regarding this
satyanarayana buddana
(5 Points)
Replied 06 September 2021
I heard that leave encashment by bank employees at the time of retirement is full exempt. Can anyone provide circular no. Or sec.no Etc., regarding this
Dharam Dev Agarwal
(2 Points)
Replied 19 October 2021
Is leave encashment taxable or fully exempted from tax for public sector bank i.e State Bank Of India at the time of voluntary retirement completed 35 years service ? Please reply
R chandrasekar
(2 Points)
Replied 18 November 2021
Bank employees at the time of retirement are not fully exempted from paying tax since nationalisation.but I was told now that it is fully exempted.if so under what section.
ramana raju
(6 Points)
Replied 07 December 2021
Leave encashment at the time of retirement for bank employees is fully exempted
Taruna Solanki
(2 Points)
Replied 13 July 2022
Leave encashment at the time of retirement for govt bank employees is fully exempted?
Roy A. Scudder
(2 Points)
Replied 08 June 2023
Typically, bank employees are entitled to accumulate a certain number of leave days each year, such as annual leave or privilege leave. If an employee does not utilize all their accrued leave during their employment tenure, they may be eligible to encash the remaining leave days upon leaving the bank or upon retirement.
<a target='_blank' rel='nofollow' href="https://ksaexpatsguide.com/mashreq-bank-salary-account/">Mashreq bank salary account</a>
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(177736 Points)
Replied 08 June 2023
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