Leave Encashment

Question BankCategory: Income TaxLeave Encashment
Sonam Gupta asked 9 months ago

Is Sum received for encashment of leave taxable  in income tax or if exempt them how much.

2 Answers
Rahul answered 9 months ago

Sum received for Leave encashment is taxable during the service. But any amount received for leave encashment at the time of retirement is exempt for Govt. employees. For other employees it is exempt only upto Rs. 3 Lakh.

Ashok Kumar answered 8 months ago

To understand taxability of Leave Encashment, Employees can be divided in following two sections:-
Central or State Government Employees;

  • Any sum received by Central or State Government Employees for leave encashment during the service is fully Taxable.
  • Any sum received by Central or State Government employees at the time of retirement or superannuation or leaving job is fully exempt u/s 10(10AA)( i )

Other  Employees;

  • Any sum received by employees (other than Central or State Government Employees) for leave encashment during the service is fully Taxable.
  • Any sum received by employees (other than Central or State Government Employees) for leave encashment at the time of retirement or superannuation or leaving job is exempt upto least of the following amount u/s 10(10AA)( ii)
  1. Sum Actually Received for leave encashment
  2. Rs. 300000/-
  3. 10 × Average monthly salary.
  4. Cash equivalent of unavailed leave calculated on the basis of maximum 30 days leave for every year of actual service rendered.

Any amount received in excess of sum exempt as above is taxable.
Note:
For this Purpose SALARY includes Basic Salary, dearness Allowance, commission based upon fixed percentage of turnover. ‘Average Salary’ for the this purpose is to be calculated on the basis of average salary drawn during the period of 10 months ending on the date of retirement.

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