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 Pankaj , will u suggest me to attach my relieving documents / full and final settlement documents with ITR in which it is clear that leave encashment is done after resigning and relieving from the company?
@Jaykumar
No document needs to be attached with ITR. It won’t be accepted by IT department.
In case they need any clarifications, they can send letter later while processing the return.
Thanks Pankaj !!!
I’ve submitted wrong return because I wasn’t aware of this rule. In my form 16 b employer has shown leave encashment as income. Please help, how do I revise the return already filed.
@Supriya
You need to file revised income tax return u/s 139(5). You can reduce taxable income as shown in form-16 by the leave encashment exempted amount.
Procedure is same as original one. Only difference would be following things:
1. Return filed under section: Revised 139(5)
2. Whether original or revised return: R-Revised
3. Receipt No
4. Original filed return date
Thanks a lot 🙂
My previous employer has considered leave encashment as taxable income in my FFS .Do I need to get it corrected by them or I just need to take care of this while filing the return for FY 2013-14. Please suggest.
@Vinay
You need to get exemption for same while filing income tax return, in case employer does not provide same in form-16.
I had leave my company and joined new company in april 2013. Now in full and final settlement from my previous company i had got leave enchashment amount of 101 leaves(accumulated during my 7.5 years tenure ). Is this amount is taxable? please suggest
also i want to know that i had also get variable pay from my previous company of last year now. So i want to ask that i have to show this variable pay amount in my income of this year ? or i didn’t show this income as my previous employer had not deduct any tax on this amount.
@Sameer
Leave encashment would be non-taxable 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
You should show variable pay amount in this year’s income and pay tax on same. I believe this is like a bonus payment.
Sir;
i had received Rs. 85000 amount as my leave encashment of 101 No leaves (accumlated during my 7.5 yrs service ). and during last 10 months my base salary was 25000 pm and with other perks salary was around 53900 pm. So how much leave encash amount is taxable out of Rs. 85000?
also sir my previous company had deducted short notice period amount with service tax in my full and final settlement. now i have to deduct the same notice pay amount in showing my previous employer income detail.
please suggest
@Sameer
I would also need two more figures to compute leave encashment non taxable figure:
1. Leave entitlement for every year of service (no of days)
2. Leave availed while in service (no of days)
30 leaves per year- 240 No for 7.5 years service and 139 leaves availed during the 7.5 year and
101 leaves balance after availing remain leaves
@Sameer
Rs 84,167 would be non taxable in your case.
The cash equivalent of leave balance = ((leaves entitlement per year * duration of service) – leave availed)/30) x (basic salary+DA per month)
= ((30*8-139)/30)x 25000 = 84,167
thanks sir for prompt reply.
but as per Maximum of 10 months of leave encashment, based on last 10 months average salary is it also non taxable?
and sir what about notice pay deducted with service tax to show in current incometax for previous employer income. have i to subtract notice pay amount from previous employer income?
@Sameer
The exemption is to be limited to minimum of all below:
1. The actual amount received: Rs 85,000
2. The cash equivalent of leave balance (max 30 days per year of service): Rs 84,167
3. Maximum of 10 months of leave encashment, based on last 10 months average salary: Rs 2,50,000
4. Rs. 3 Lakhs
Point 2 is minimum here so exempted amount would be Rs 84,167 only.
There is no exemption/deduction for notice period payment. Its an expense and cannot be deducted from income.
THANKS SIR
Dear Sir;
I want to know that i had made FD and recurring deposit in bank and interest earned during the year would be around 17000, TDS for the same is also deducted during maturity time in this year. Now my question is i have to show this fd interest amount in actual investment form to my employer? or i can shown it during time of income tax return filing? and how to file this additional tax of fds during return filing time? please suggest
@Sameer
If you declare this interest and TDS with your employer, in case there is some extra tax, it would be taken care of by employer by deducting from salary. This would save any later hassles and self assessment/advance tax payment by you.
You can also compute tax on total income (including FD/RD interests) yourself and pay remaining taxes, if any and show same in income tax return.
I resigned in Dec2013 and got a leave encasement in Dec salary while I am on notice period. My question is leave encashment during notice period is taxable or not?
TIA,
girish,
@Girish
As its paid after resignation, you can can take it as non-taxable.
Thanks Pankaj,
You mean to say the leave encashment during notice period is not really taxable and I should ask my employer to reconsider the taxation on leave encashment?
Or I have to take care of this amount my self while filing ITR in for 2013-14.
~girish.
@Girish
You can request employer to consider leave encashment as non taxable. If they don’t agree, it can be taken care while income tax return filing.
my employer asks for proof of bank interest certificate for deducting additonal tax from salary and i asked bank (sbi) to give interest certificate, but sbi person said to give this certificate after march-14.
So after march how i pay this additional bank interest tax- is there any way to online paying for this additional tax- and if yes please tell where and how pay this. Also in tax return where this tax i have to show.
also please suggest while filling tax return what is taken care for the TDS deduction at bank,so there will no problem afterward.
@Sameer
You can pay extra income tax yourself here: https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
In income tax return, it would be shown under self assessment tax.
TDS deducted by bank would also be put in ITR under TDS other than salaries section.
Sir, what is a status of autonomous body, shall be considered as government organization or as non government organization under section 10(10AA) .
@Arvind
I think, it would be assumed as non-government organization.
SIR, I HAVE 100 DAYS EL AND 200 DAYS HPL AT MY CREDIT AS ON DATE. I AM A PUBLIC SECTOR EMPLOYEE. WHAT IS THE TAX LIABILITY FOR ME SINCE I AM GOING TO RETIRE ON 31.05.2014. MY EMPLOYER TOLD THAT THEY WILL NOT DEDUCT TAX ON MY EL BUT THEY WILL DEDUCT TAX ON HALF PAY LEAVE THOUGH BOTH COMES TOGETHER IS LESS THAN RS.3,00,000/-. I AM ARGUING THAT YOU WILL DEUCT TAX BEYOND RS.3,00,000/-FOR MY EL AND HPL ENCASHMENT BOTH CLUB TOGETHER. WHICH IS CORRECT AS PER INCOME TAX RULES.
THANKING YOU SIR
@A Nageswara
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
In case your employer does not agree to deducting taxes above 3 lakh amount only, you can ask for refund while filing income tax refund.
THANK YOU PANKAJ GI FOR YOUR REPLY
I have retired from Punjab State Power Corporation Ltd on 30.4.2013 a Govt.of Punjab undertaking. I have received a sum of Rs.6,19,370/- as leave encashment. The department has deducted income tax on 3,19,370/- (6,19,370-3,00,00) amounting to Rs.65,370/-. Some of my colleague who have retired have got refund of income tax deducted on Leave Encashment from IT department through income tax consultant (advocate). I want to get refund of Rs.65,370/- by directly filing my income tax statement through e-filing. If you can advise me about this through my email. Thanks.
@Rajinder Singh
You can simply reduce this extra 3,19,370 from taxable income and file returns. IT department would issue refund for extra tax deducted.
However, as your were not state/central govt employee, If assessing officer raises query on taxability, refund may be denied.
Hello,
Can you please help me on the following?
1. Which section do I declare in ITR1 the leave encasement amount which I got at the time of my resignation?
2. Which section do I declare in ITR1 the gratuity amount which I got for the first time of my resignation?
I think both are non-taxable. Please clarify.
@Uttam
You will have to use ITR-2 and show these amount under Exempt income section.
HI,
I was informed that leave encashment is non-taxable only at the time of returement and not for changing jobs. My ex-employer used to encash un-used leaves every year for all employees. In this case, will it be non-taxable?
Also what about gratuity? is it non-taxable?
@Deepesh
If leaves are encashed while in service, they would become taxable.
In case one leave job, it would be non-taxable upto Rs 3 lakh for all such payments received from all employers.
Gratuity would be non taxable upto Rs 10 lakh for non-govt service, if five years are completed with employer. The limit of 10 lakh applies to the sum of all gratuities received from one or more employers in the same or different years.
Thanks Pankaj. Another suggestion required for below problem. My final settlement from previous employer came in the month of April 2014. They have given me breakup of gross salary and tax paid. Should i just add that GROSSsalary to the GROSS in my new employer’s form 16 and also add the tax paid there with new TDS and submit?
Since i left the job @ exemployer i guess my leaves encashed will be non-taxable. How can i submit this exemption?
Thank you
The final settelement from exemployer came in April 2013 (not April 2014…sorry for typo)
@Deepesh
Yes, you would need to add income from salaries from both form-16s and show same in ITR.
You would need to fill ITR2 and show leave encashment exemption under sheet:PARTB – TI – TTI – SAL, in Schedule S in 2 (iv) section.
Hi Pankaj,
Could you please help me to understand in ITR 2 where should I add vacation encashment amount?
In my form 16 its part of salary. Where should I include it to get tax exemption benefit?
@Varun
You would need to fill ITR2 and show leave encashment exemption under sheet: PARTB – TI – TTI – SAL, in Schedule S in 2 (iv) section.
Thank You Pankaj, Its really helpful.
I have two more question
1. I have long term capital gains through stocks. If I am right there is no tax on such gains but I am not getting where can I show such gains in ITR 2
2. I forget to declare LIC with my employers and now to take benefit of 80C I would like to declare that amount. If I am filling my return by my self , is it fine if I will add that amount in 80C or to claim benefits which are not in form 16 , I need to fill return by CA’s only?
@Varun
1. In EI sheet of ITR-2, there is a section named as Long-term capital gains on which Securities Transaction Tax is paid.
2. Yes, you can claim LIC policy premium payment under 80C section yourself. There is no need of CA here.
Hi Pankaj,
Could you help me to understand in ITR 2 where should i fill medical reimbursement and conveyance amount of my form 16?
Also in Schedule S my salary should include medical reimbursement and conveyance or exclude?
@Vishal
There is no option to mention medical reimbursement and conveyance allowance in income tax return forms.
Your income under head salaries should be mentioned after deduction of these allowances only and should be same as per form-16 issued by employer.
Dear Sir
In the assessment year 2014-15, I recieved full salary for the month of April for which a TDS of Rs 7794 was deducted and submitted. I received full and final settlement which included full salary for month of may and exgratia full and final settlement for amount 2.23 lac having leave encashment of rs 20000 appx and PF deduction of rs 16074. No TDS was deducted. I want to know if this fund received is taxable and will this amount will get added to the income I generated after I joined another firm
@Pramod
Yes, amount is taxable.
The amount mentioned as income from salaries in form 16 issued by previous company would be added to taxable income.
Sir, I am employed in PSU.
and availed 86 no. of EL this year.
Leave entitlement is 30 day/year.
My basic pay is some 28000 Rs and DA is some 25000 Rs. So Basic +DA is 53000 Rs.
Received amount 153000 Rs as Encashment.
Sir as I dont comes under category of Job changes or Retirement. tell me if there any scope for Tax exemption in EL encashment. my retirement year is 2043.
@Nitin
As you have encashed leaves during employment, there won’t be any income tax exemption on the amount received.
Sir
I received 30 day pl encashment 10 days before resignation from punjab national bank amt 14000 so it is taxable or not. 2013
@Ashvani
As amount received while in service, It would be taxable.
Dear. sir
i got qatar visa and also agreement from the company so i applied for ecnr how long it will take to get passport with ecnr kindly letme know please.
thanks
@Mohammed
Under normal application, it would take 30-40 days.