Comments on: Leave encashment non taxable

By: Srinivas

Srinivas — Sun, 27 Jun 2010 16:50:35 +0000

Thanks Pankaj for the quick reply.

regards

Srinivas

By: Pankaj Batra

Pankaj Batra — Sun, 27 Jun 2010 16:35:35 +0000

@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

By: Srinivas

Srinivas — Sun, 27 Jun 2010 16:29:05 +0000

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

By: Pankaj Batra

Pankaj Batra — Sun, 27 Jun 2010 15:47:51 +0000

@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).

By: Srinivas

Srinivas — Sun, 27 Jun 2010 08:55:15 +0000

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

By: Srinivas

Srinivas — Sun, 20 Jun 2010 15:47:17 +0000

Thanks Pankaj.

By: Pankaj Batra

Pankaj Batra — Fri, 18 Jun 2010 16:10:25 +0000

@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).

By: Srinivas

Srinivas — Fri, 18 Jun 2010 14:52:54 +0000

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.

By: Pankaj Batra

Pankaj Batra — Tue, 15 Jun 2010 15:34:40 +0000

@Mirza
Yes, that amount is non-taxable too.

By: Mirza Manzoor

Mirza Manzoor — Mon, 14 Jun 2010 16:35:32 +0000

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,