As per section 10(10AA) of income tax in india, leave encashment amount received by employee by a previous employer in full and final statement, is non-taxable. So If you have changed a job in financial year and received leave encashment for the remaining earned leaves (ELs) Just deduct the amount from total income and compute the income tax on top of that.
Payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt.
In case of other employees, the exemption is to be limited to minimum of all below:
1. The actual amount received
2. The cash equivalent of leave balance (max 30 days per year of service)
3. Maximum of 10 months of leave encashment, based on last 10 months average salary
4. Rs. 3 Lakhs
Related posts:
how to calculate leave encashment? Do we need to calculate on the last drawn salary or the leave earned for working for the earlier years?
@Vrinda
Different employers may have different policies, some may only pay last drawn basic salary, some may give full salary and some may pay on basis of average salary over last some duration.
Please confirm the rules from your employer.
Hi
I have worked in a company for 5 yrs 3 months.I have 39 Days earned leave at the time releive.
During my releival,the company paid both Gratuity and leave salary.But they have not send the split up.But i have calculated,it is close to Gratuity for 5 yrs as per Gratuity calc and company leave policy calculations.
In form 16,they have made the Rs 7518 as taxable(both gratuity & leave salary) for this component.They are saying that they are correct and Form 16 is also correct.
As per understanding,leave salary at the time of relieve is fully non taxable .Also gratuity less than 3.5L is also non taxable.
kindly advise can I make this amount Rs7518 still non taxable and pay the remaining tax is fine or I have to approach which office to solve this.
Reply soon
@Narayanan
Your employer need to provide break up for Gratuity and leave encashment. Both are non-taxable within certain limits.
In case you want to claim for extra tax paid, you can deduct this from your taxable income and file income tax return showing a refund.
Sir What is the formula for calculation of Leave encashment i.e. Salary to be devided by 26 or 30 for getting salary of 1 day?
@Neeraj
There is no standard rule on this. Each employer has its own rules for the same.
Dear Sir
we are trying to make new salary structure to give maximum tax benfit to our employees. please provide me the non taxable heads on [email protected]
we are noida based Pharama compnay.
Regards
Nitin
@Nitin
You can read more about best salary components on this page: http://www.socialfinance.in/questions/82/tax-exemption-component-for-salaried-employee
I.E LEAVE ENCASHMENT AMOUNT IS RS.500000.00.HOW MUCH WILL PAY FOR TAX
@Sanjeev
If this amount is received by Govt employee, whole amount would be non taxable.
For others, the exemption is to be limited to minimum of all below:
1. The actual amount received
2. The cash equivalent of leave balance (max 30 days per year of service)
3. Maximum of 10 months of leave encashment, based on last 10 months average salary
4. Rs. 3 Lakhs
Rest amount would be added to taxable income and taxed as per slab rates.
Thanks vey much sir
Rgds
Nitin
In government service, leave salary (other than casual leave) is calculated as under: salary of the month immediately preceeding the month in which leave is applied for divided by the number of calender days in the month immediately preceeding the month in which the leave is applied for. this gives leave salary payable for one day.
hense, if you apply for leave in month of march, your leave salary will be more as feb has only 28/29 days. on the other hand, leave salary if leave applied in jan feb, apr, jun, jul, aug, sep, nov will be less as the preceeding months has 31 days. suppose, your promotion date or increment date falls with in the period of leave including study leave (except casual leave), you will be deprived of the increment/promotion benefits during such leave. the increments in such cases are just notional
Hi Pankaj.
I hv ESI deduction, then also Medical bills are considered for Tax exemption ? plz explain me
@Shilpa
Yes, medical bills reimbursement is allowed for max 15000 per year.
I have availed LTC facility from our centarl PSU. We are given Rs, 30,000/.-every year as leave travel allowance. LTC was availed in 2010 for the years 2008-09.I have incurred an expense of Rs. 45000/- towards travel cost. Can I claim exemption for Rs. 45000/- as I am eligible for Rs. 60000/- for two years.
@Satheesh
LTC and LTA are two different terms.
In Govt department, there is no fixed component in salary for leave travel expenses and whatever is provided as expense, is reimbursed within limits of income tax acts.
Whereas in case of LTA, yearly salary package has leave travel component, which becomes tax free if proofs are provided, else the same is paid after tax deduction on each year end. In this case, amount is not carried forward to next years, so you cannot get exemption for more than your yearly component at once.
Some private companies/PSU have yearly components, but it keeps accumulated and paid once claim is made and in that case the whole claim amount becomes non-taxable.
I am not sure, whats is your case here.
i joine my new job in june 2010 and i got Rs.60000/-in liue of settelment of unavailed leave. is this amount taxable.
@Amgupta
No, amount received for leave Encashment will be non-taxable on leaving job.
LEAVE ENCASHMENT RECEIVED FY 2010-2011 & JOB IS CONTINUE. IS LEAVE ENCASHMENT WILL BE TAXABLE.
@Usha
Leave encashment is non-taxable at the time of leaving service only.
If its paid in middle of employment, it will be taxable.
i am an employee of bsnl, a PSU organisation under Govt. of India. Whether,
i have to pay income tax on my leave encashment which i will receive after my
superannuation retirement on 30.11.2011.
please advice.
@Sanjoy
You may have to pay income tax on certain portion. The exemption is to be limited to minimum of all below:
1. The actual amount received
2. The cash equivalent of leave balance (max 30 days per year of service)
3. Maximum of 10 months of leave encashment, based on last 10 months average salary
4. Rs. 3 Lakhs
Job is continuing and leave encashment is received while doing job is fully taxable.
But leave encashment received after joing another job then examption will be available.
Hi Pankaj,
You mentioned that Leave Encashment is non taxable, but on your Income Tax Calculator F.Y. 2010-2011 Leave encashment is taxed.
I left my previous organization in december 2010 and received 5150 as leave encashment, is that exempted from tax, if yes under what section.
Thanks for your help.
Regards,
@Karmendra
By default, its assumed as taxable in calculator.
In case you are eligible for exemption (you got this amount on leaving job) then you may skip putting this amount in calculator.
Leave encashment is exempted under section 10(10AA).
How amount of leave encashment is calculated. If my salary is 30000, what will be per day.. will it be calculated based on 25 days/month or 30days
@Sanjay
Generally its calculated by dividing monthly salary by 30.
But policy is not fixed and varies employer to employer. Please consult your employer for the same.
Hello Pankaj,
In 2010, I claimed LTA for 2009 and same was tax free for me. So I claimed against submission of Travelling bills. Now I want to claim LTA for 2010 which will be taxable. Do i need to submit any bills. My HR team is asking for Bills. Can you pls clarify the same.
@Shamsher
If you have not traveled then you need not to claim LTA. Your employer should pay you at the end of financial year after deducting tax.
I have a query regarding the clubbing up of the 2 Form 16s. While computing final tax for filling return, can I claim the following amounts (exemption under section 10), spend on
1) Petrol & Vehicle maintenance
2) Telephone Expense
3) Uniform Expense
Both my companies have straight forward way of calculating salary (Basis, HRA & Special allowance). Is there any other head which I can claim to bring down my tax liability ?
@Krishna
You cannot claim deduction for expenses like Petrol/Vehicle maintenance, Telephone and uniform expenses while filing income tax return.
If your employer did not provide these salary components, no exemption is available for these.
Thank Pankaj for your response. I was checking my Form-16 from my previous employer and they have a section called car main. allowance under section 10. If I remember correctly till 2009-10 the complete amount was exempted but after that some some portion depending upon the CC of car and a limited portion towards drivers salary was exempted. I had provided original bills to the employer to claim the benefit but it is not showing under section 10 as exempted.
Can you clarify this ?
@Krishna
Car maintenance allowance in not exempted under section 10.
It comes under Perquisites and generally not declared on form-16. Its non-taxable upto Rs 1800 per month Or 2400 depending on cubic capacity of car. Rs 900 is non-taxable per month for driver salary. These limits are with condition that car is employee owned and used by employee for office as well as personal use.
You can ask your employer for clarification on it.
Some years back, it was considered Fringe benefit and FBT was paid by employer and it was non-taxable in hands of employee.
my previous company has given me Leave encashment amount in full and final settlement , but they didnot deducted tax ,now what proof i need to show for leave encashment amount to the govt. so that they will not calculate tax on my leave encashment amount???
@Lokesh
No proof needs to be attached for leave encashment deduction.
This income won’t be included in your taxable salary. Same will also be shown in Form-16 issued by your previous employer.
my previous employer haven’t included this amount this amount in form-16, but he has given me a breakup receipt for F&F settlement amount.
can i provide that receipt along with an formal application to consider the leave encashment amount for exemption.???
@Lokesh
No document/proof needs to be provided to IT department while filing income tax return.
In case IT department want proof of exemption, they will raise a query.
this leave encashment amount is not shown as non taxable component and not deducted from gross salary so it is taxable in form 16.how come income tax dept. come to know that how much amount is against leave encashment..??
@Lokesh
Don’t worry about it. Just declare and there will be refund issued.
They will trust your taxable income declaration.
My wife who is an employee of Govt of Tamilnadu owned power sector. She was retired under VRs basis from the Board in the middle of January 2011. In this regard I request your bestow please guide me whether the leave encashment on retirement is eligible under section 10(10AA) of income tax in india, leave encashment amount received by employee, since the Board is belongs to the State Govt. Whether the employees at the time of retirement in respect of the period of earned leave at credit is fully exempt?
@P.Govindarajan
In case she is an state govt employee, full leave encashment amount will be non taxable.
In case of other employees, the exemption is to be limited to minimum of all below:
1. The actual amount received
2. The cash equivalent of leave balance (max 30 days per year of service)
3. Maximum of 10 months of leave encashment, based on last 10 months average salary
4. Rs. 3 Lakhs
hi pankaj,
I have encashed my leaves while leaving the organization in the year F12 for which company has not deducted Tax as per 10 (10AA). I have joined other organization & worked there for 3 months after which i have rejoined my first organization in the same financial year. My first company has now dedcuted tax on previous leave encashment money even though I have joined with different emloyee ID & with new employee records. Please tell me if i am liable to pay tax eventhough I left the company as per rule 10 (10AA) & if not then can i claim tax rebate?
Regards
@Prashant
Its a tricky situation. I am not very sure but TDS would have been rightly deducted as you joined them back in same financial year.
As now this company cannot issue Form-16 with non taxable leave encashment as you are still employed with them.
New employee ID or record won’t matter as you are still same person with same PAN information, so only one form-16 will be issued to you for whole year.
leave encashment received saying that he is resigning later on remployed in same org so whether leave encashment taxable?
@Snaha
If employee again joins back in same organisation in same financial year then leave encashment may become taxable. As employer won’t be able to show it non-taxable in form-16 as employee would be still employed there only.
what was the age to get Senior Citizen concession in Income Tax for FY 2011-12.
What were the tax slabs for various categories for the FY 2011-12.
@Venkat
From FY 11-12, people above 60 years would be considered as senior citizens in all financial matters.
You can check tax slabs on this page: http://www.pankajbatra.com/india/income-tax-calculator-india-2010-2011-2012
an employer pays insurance premium of employees whether it falls in defination of perquisite?
@Snaha
Employer paying insurance premium on employees’ behalf, would be taxable in hands of employees and will be considered part of salary only.
Employee can claim deduction for same under 80-C.
At the time of retirement total of Basic Pay, Dearness Allowance, CCA and HRA for 8 months was paid as leave encashment. Whether the CCA and HRA are also taxable.
@Sitaram
If the amount has been paid as leave encashment, the total amount will be non taxable.
As I am a BSNL employee kindly know whether tax is applicable for leave encashment.
@K.M.Shanbhogue
The exemption is to be limited to minimum of all below:
1. The actual amount received
2. The cash equivalent of leave balance (max 30 days per year of service)
3. Maximum of 10 months of leave encashment, based on last 10 months average salary
4. Rs. 3 Lakhs
Hay pankaj hi
How are you sir,
I have a simple question about Leave-Encashment , when company encash 90 days salary in between employement, i’e L.E amount Rs:-150000/- what is the rate of tax deducted by an company???????
@Dhananjay
Leave encashment between employment is fully taxable. This income would be added to your taxable income and taxed as per your slab rate (max 30% income tax).
hi,
I have one sum that is X was in service for 7Ys 8 months, received leave encashment 4lakh. avg salary 35000 pm, calculate taxable leave salary
thanks
@Shilpa
In case you were not a Govt employee, the exemption is to be limited to minimum of all below:
1. The cash equivalent of leave balance (max 30 days per year of service)
2. Maximum of 10 months of leave encashment, based on last 10 months average salary
3. Rs. 3 Lakhs