Leave encashment non taxable

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• Hi,

  I am a retired from Nationalized Bank Services. Can you please let me know tax liabilty on Leave Enchashment on Retirement.

  Thanks in advance.

  • @M R Chalapathi
    The exemption on leave encashment 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 had a leave encashment of 85751 in my full and final settlement. In my Form 16 of the previous company - they have just taken 39476 as the tax exempted amount u/s 10. Is this correct.

      Pls mail me response at .
      I will be very thankful.

      • @Rohan
        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

        Please compute this and see if 39476 has been correctly marked as non taxable. If not, you can claim for full amount while ITR filing.

        • Thanks, Understood. Just to confirm below -
          I have worked in Oracle for exactly 4 years till june 3, 2011. In my full and final settlement, I had 34 days of leave encashment with value of Rs. 85000 approx. In my form 16, they have considered only 39476 as exempt from tax

          By the rules above I should have all money as taxfree and they have put the remaining as taxable part increasing my tax payable by more than 10,000 rupees.

        • @Rohan
          We are not sure how they came to figure of Rs 39476. You should ask your ex-employer Oracle on non-taxable computation details.

        • @Rohan
          There is an update:
          The clause "The cash equivalent of leave balance" is explained as: = Period of earned leave (in number of months) to the credit of the employee at the time of leaving the job (or) resignation X Average monthly salary.
          Average monthly salary = Basic salary + Dearness Allowance

• Hi Pankaj,

  My previous company paid me leave encashment on the basis of gross salary i.e they calculated the amount by multiplying no. of leave days * (gross salary for one day). Now, will the whole amount get exempted or only the basic part calculated as no. of leave days * (basic salary for one day).

  • @Pankaj
    Whole amount would be exempted, subject to maximum exemption limits.
    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

• If i purchase a flat in the name of my wife , and pay the loan from my salary will i get benefit of interest and principal amount paid during the financial year.

  • @M.Das
    Flat should be in your name in order to get tax benefit for loan interest and principal payments.

• i am in employment since 9 years getting leave salary of 88 days what will be calcilation kindly help me in working out

  • @Shobhana
    In case you are not government employee, maximum amount of Rs 3 lakh would be non taxable in case leave encashment amount is more than 3 lakh. Else whole amount would be non taxable.
    This is only valid on leaving job from this employer. If payment is made while in service, amount would be taxable.

• I know that if you leave company that time leave en-cashment is not taxable.

  My company is acquired and company is giving maximum 30days leave en-cashment.

  So in this case leave en-cashment is taxable or not?

  Please let me know.

  • @Vicky
    If company is acquired and you join new parent company (by resigning from first and joining second), leave encashment would be non-taxable.

• 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.

  Can you please confirm that a person serving in an Central Autonomous which is funded by Government (its expenditures are met through budget grant given by GoI) should be treated as Government Employee for the above rebate or not? The employee is governed by the pay-rules of GoI and Leave encashment is done on the basis of GoI rules which are applicable for Central Government Employees.

  • @Ravindra
    This rule is strictly for Govt employees. If your job is considered a Govt job, then these rule will apply else not.

• My earlier query which is as follows is still un-answered;-

  For leave encashment exemption, will an employee of an Central Government Autonomous body which is funded by Governded of India through budgetory support (i.e. salary of employees and other expenditures are met from Grant received as budget from Government of India ub Non-Plan) should be treated as Government Employee or not for total exemption from Income Tax at the time of retirement. Employee get salary and other allowences as per the 6th Pay commission of Central Government

• how can i use this calculator..

• In FY 2011-2012, I've enjoyed the exemption benefit of Rs. 3,00,000/- under section 10, as you have mentioned above. I now want to e-file tax return, but I'm unsure which ITR form I'm supposed to fill. Can you help me with ITR form that I should be filling.
  I'm retired, and I'm receiving pension from BMC. I've no other source of income.

  Thanks

  • @Kailash
    You should file returns with ITR1 form.

    • Thanks for your response.
      I guess I need to deduct 3 lakhs from total taxable income, and declare that as income for the financial year in point 1 of ITR 1.

      • @KN
        Yes, you are correct.

• I got leave encashment in previous year in my final dues settlement. But my previous employer has deducted income tax on it. Form 16 section 10 also does not include Leave encashment. Can I still claim tax rebate while filing my income tax return.

  Thanks...

  • @Aparna
    You should reduce taxable income by deduction amount and file returns.
    In case IT department sends query later for explanation, send full and final statement as proof.