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
From PankajBatra.com, post Leave encashment non taxable
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Thanks very much for taking your time to create this very useful infos .
I am making a report .I was searching for website about income tax calculator this blog. I am interested in your information and appreciate sites like this.
is iterim relief is allowed in the calculation earned leave encash ment for retired ap state govt. employees
is a reimbursement of children education allowance a part of gross salary?
@Meena,
Children’s education allowance qualifies for an exemption of Rs 100 per month per child subject to a maximum of two children.
It will be added to gross salary but above amount will be exempted. Please use income tax calculator for computation.
is foreign travel is eligible for LTA claim ?
@Manoj
No, Foreign travel is not eligible for LTA claim.
Can I claim HRA as well as House Loan Interest exemption as I am living here in Mumbai in a self occupied house which is co-owned by me and my wife ? We haven’t decided yet on individual shares.
My wife is also a co-applicant in the loan but till this year she hadn’t been filling her income tax return being a housewife.
Myself also having a rented house in Delhi from where we got shifted to Mumbai last year but the same has not been vacated till yet and I am also paying monthly rent of the house in Delhi.
Please advise !!
@Parveen
If you are working in Mumbai and living in a self occupied house in Mumbai, You can not claim HRA for rent on Delhi house.
if I would be having another rented house here in Mumbai only due to large size requirements for family then also I am eligible for HRA or not ?
@Vicky
No, you won’t be eligible for HRA in that case also.
As per rules, if you own a house within commutable range of your office, then you cannot claim HRA.
You could have get benefit of both, if you would have a house in Delhi (and paying house loan) and living on a rented house in Mumbai.
http://www.incometaxindia.gov.in/Pamphlets_Split/EXEMPT%20INCOME.asp says –
21. Any payment as leave encashment in respect of earned leave paid to the retiring employees. Section 10(10AA)
Does it really cover people who jump to another job in between a fin. year? because it says “retiring employees”.
Also is there any other exemptions that we can avail from the previous employer settlement?
@Guru
Even in case of resignation, its applicable
http://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/caselaws2002/casesec10(10aa).htm
How can i calculat leave encashment examptation
@Laxman
Whatever amount you have got as leave encashment in full and final settlement from previous employer, is non taxable.
If I remember correctly, there was a limit (in 2006-07), above which it was taxable. Appreciate clarification on the present upper limit, if any.
@Srinivas
For Govt employees, this amount is is fully exempt. For others, maximum of 10 months of last 10 months average salary (max limit 3 Lakhs).
Thanks Pankaj.
Pankaj,
Is there another clause also (Cash equivalent of salary)? How do you calculate this ‘Cash equivalent of salary’? I had served a company for 2 and half years (08.06.2006 to 25.06.2009). My basic was Rs. 71,800/- (average for last 10 months also) and had 32 days earned leave at the time of resignation. I got Rs. 235,082/- as leave encashment (based on basic and other components of salary) for the same. However, the form-16 issued is showing tax exemption for Rs. 76, 587/- only (amount calculated as ‘cash equivalent of salary’, which was calculated as basic x no. of earned leaves / 30). Is this calculation a correct interpretation of IT Act? If not, what should be the exempted amount based on above facts?
thanks, regards
Srinivas
@Srinivas
Maximum allowed leaves to be non-taxable is 30 per year.
The cash equivalent should be calculated depending on your company’s policy. In your case, they have only taken basic salary as cash equivalent.
So they have calculated cash equivalent as basic salary * (no of earned leaves/30).
Then for 2 and half years of service shouldn’t it be multiplied by 2.5 i.e., basic per month X 2.5? I understand that typically salary means basic + DA and DA is nil in my case.
thanks, regards
Srinivas
@Srinivas
But you had only 32 earned leave at the time of leaving the company. That makes 32/30 times basic salary.
Non-taxable 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
Thanks Pankaj for the quick reply.
regards
Srinivas
Is half pay leave encashment at the time of retirement, taxable or non taxable,if we have no E/L in our credit,then HPL on our A/C is credited & encashed against E/L,
@Mirza
Yes, that amount is non-taxable too.