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
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.
DOES LTA COVER LOCAL TRAVEL EXPENSE AND TAXI TRAVEL FROM NODEL RAILWAY STATION TO YR YOUR HOME TOWN WHEN BUS AND TRAIN ARE AVAILABLE
@SK Saxena
If public transport exists, taxi fare cannot be shown to get LTA exemption.
Dear Pankaj,
I am a defence service personnel and presently on a mission in foreign country for a period of 3 years. I would like to know whether amount deposited/interest earned on Fixed deposits in SBI for certain period, is taxable or otherwise. Because Bank manager has assured me of NO tax. Am i required to submit some proof of my foreign assigment, to my bankers in India or otherwise. I shall be highly thankful for your valuable response.
@JyotiSharma
As you have Non-resident status, income earned outside india won’t be taxable in India. But the income earned in india should be taxable here.
I have travelled from Kolkata-Haldwani by rail and from there i moved to Nainital-Almora-Kausani-Ranikhet-Corbett.Finaly we caught train for Delhi from Moradabad and back to Kolkata.Can i claim LTA benefit for the travel undertaken by hired car as per actual bill of the transporter as there is no rail service available.Pls advice.
@Konkon
In case, the rail service is not available, only fare of existing public transport can be considered and not the hired car rate.
Dear Pankaj,
Your site & answers are pretty comprehensive & knowledgable. I have a query. I am leaving job & paying balance of notice period. Company has adjusted my salary against the same. Can company charge for salary which is not paid? Also, this notice period amount will be borne by next employer. Will that be taxable & taken as income in IT calculation?
Thanks & Regards
Neeraj
@Neeraj
Your previous company cannot deduct TDS on amount not paid to you.
In next company, the notice period amount will be provided as a bonus and tax will be payable on that. This amount will be added to your taxable income.
Please solve my query :
If X received leave encashment for Rs. 56,000 on account of accumulated leave for 240 days. He was entitled to 40 days leave for every year of service. He served for 24 years 4 months. Last drawnsalary Rs. 5,000 p.m . X was employed in ABC pvt. ltd.
Do we have to calculate cash for unavailed leaves.. if yes , how ? reply me urgent.
@Sachin
In your case, You can have maximum 10 months of average salary (drawn in last 10 months) as non-taxable, that will come out as 50,000 Rs.
as we know exemption under section 10(10aa) is least of four..
in my case
(a) 3 lacs (govt specified limit)
(b) 56000 (actual received)
(c) 50000 (5000*10 months)
(d) ??????? ( ???????)
what should be (d) part calculation
acc. to me part (d) leaves availed shout be find out i.e.— (A) 960 (24*40) – 240(accumulated leaves) = 720 days (leaves availed)
so leave entitlement on 30 year basis is—-(B) 24*30 = 720 days
So, A-B = 0 days = Entitlement to encashment = NIL
Therefore least of four should be Nil means no exemption should be provided.. and whole Rs. 56000 is taxable as part of salary..
Please confirm my answer….am i right or wrong
Thanks
read- 30 ‘year’ basis as 30 days basis…mistake in my above reply
@Sachin
4th component is Cash equivalent of leaves (max 30 days per service year)
So If it can be calculated as per below:
As you served 24 years (as per rules, only full years considered). For each year, consider minimum of 30 and (40-leave taken) as non-taxable and compute the total amount.
yeah i got it.. thanks
if i change little bit above question.. see now
Please solve my query :
If X received leave encashment for Rs. 1,68,000 for 420 days of leaves standing at his credit. He was entitled to 45 days a year. He served for 17 years 4 months. His 10 month’s average salary = Rs. 260705 . X was employed in ABC pvt. ltd.
Solution – least of four
(a) Rs 3 lacs
(b) Rs 1,68,000 (actual receeived)
(c) Rs. 260705 (10 month’s average salary)
(d) cash equivalent ??????? i dont know how to calculate this… put some light on this point..
@Sachin
Point (d): Total service years: 17. Leaves allowed per year = 30. Total leaves max which can be tax free = 17*30 = 510.
cash equivalent of 510 leaves depends on company policy.
If company pays only basic salary for leave encashment, then cash equivalent portion = 510 * last drawn daily basic salary.
If company pays full salary for leave encashment, then cash equivalent portion = 510 * last drawn daily salary.
I am ca student. i am referring my questions from 1 book.. but point d in the book is not calculated as we both understand ..
it is as follows
(d) — (i) as per contract
420 days of leave outstanding= 14 months *26071 = Rs. 364994
—(ii) as per income tax
Finding outstanding leaves allowed at 30 days a year
Total leave entitlement allowed as per contract(a)=765 days (45*17)
Less : Accumulated leave outstanding as per contract(b)= 420 days
Actual Leave availed (c) (a-b) = 345 days
Leave Entitlement (on 30 days basis) (d) =510 days (30*17)
Entitlement for encashment (d-c) = 510-345 days = 165 days= 5.5 months
Cash for unavailed leave = 26071*5.5 month= Rs. 1,43,391
In point (d) least of two i.e. as per contract and as per income tax, income tax basis Rs. 1,43,391 is taken
and it is also least of four
Please clerify is this right
@Sachin
I could not find any tax rules over internet which does computation on basis of actual leave availed.
However, I might be wrong. I am not a CA or income tax professional and have no finance education. I am a software engineer by profession and write about personal finance due to me interest in sharing what I know.
ok. even ICAI has solved above question same in suggested answers of Revision Test Papers
can u understand above thing…. as per contract 420 days outstanding is taken and multiplied with salary
u know salary for this purpose is taken as Basic+D.A. (only if it enters retirement benefit)+ % Commission on Sales .. remember not on purchase.. it is as per Income tax rules
Hi ,
In my company leave encashment calculated as ((Basic + HRA)/ working days i.e. 22)
So in full & final settlement ..entire leave amount is non-taxable or only Basic related portion of encashment is non-taxable & need to pay tax on HRA portion.
Thanks
Abhijeet
@Abhijeet
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
Read more: http://www.pankajbatra.com/india/leave-encashment-non-taxable/#ixzz1346cEq7Z
dear sir, the leave-encashment rules says -
for govt. employees- fully exempted
for others 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
i was working in a nationalised bank. whether i am fully exempted beyond Rs. 3,00,000/-
KINDLY REPLY IMMEDIATELY,
THANKS
@R Sekhar
For Nationalized banks, max limit would be as per non-govt norms.
HI Pankaj, i am serving a notice period in my company, as of 35 leaves which is pending in my 2 and half year career in this company, by coming year jan mid my notice period will get finished, will i get my leave balance in jan only or will it moved to feb, how can i claim the leave balance from my company.
@Nagraj
In your full and final statement from current employer, there will be a payment towards leave encashment (if these leaves are paid leaves) and which will be non-taxable subject to some conditions and limits.
I SERVED IN PRESENTLY CENTRAL RESERVE POLICE FORCE. I HAVE TAKEN TEN DAYS LEAVE ENCASHMENT BEFORE 10 YEARS OF QUITTING SERVICE. THIS LEAVE ENCASHMENT DRAWN AMOUNT FOR INCOME TAX FULLY EXAMPTED OR NOT. PLEASE CLARIFY IN THIS REGARDS.
on the basis of LTC block year 2010-11 ten days leave encash on dated-20-5-10 serving personnel. For calculation of Income Tax financial year 2010-11 above leave encashment whole amount income tax fully exampted or not. please clarify.
@Ajit
Yes, leave encashment is non-taxable in your case.
Is Children Educaiton Allowance (maximum Rs. 12000/- each child upto 2 child) will be included in gross salary? This CEA amount exemption from income tax or not. Please clarity.
@Supriya
Children Education allowance: Per school going child 1200 per annum is non-taxable. Maximum for 2 children, so max 2400 per annum becomes non-taxable.
I SERVED IN CENTRAL PARA MALATRY FORCE. I HAVE TAKEN TEN DAYS LEAVE ENCASHMENT WITH THE LTC BLOCK YEAR 2010-11(WHILE IN SERVICE). THIS LEAVE ENCASHMENT DRAWN AMOUNT FULLY EXEMPTED FOR INCOME TAX OR NOT. PLEASE CLARIFY
@Harsh
LTC and leave encashment are two different things.
LTC is provided when you travel on leaves with your family.
Lease encashment is payment for leaves not taken and it is non taxable but 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