Leave encashment non taxable

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

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Pankaj Batra

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  • My wife who is an employee of Govt of Tamilnadu owned power sector. She was retired under VRs basis from the Board in the middle of January 2011. In this regard I request your bestow please guide me whether the leave encashment on retirement is eligible under section 10(10AA) of income tax in india, leave encashment amount received by employee, since the Board is belongs to the State Govt. Whether the employees at the time of retirement in respect of the period of earned leave at credit is fully exempt?

    • @P.Govindarajan
      In case she is an state govt employee, full leave encashment amount will be non taxable.
      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

  • hi pankaj,
    I have encashed my leaves while leaving the organization in the year F12 for which company has not deducted Tax as per 10 (10AA). I have joined other organization & worked there for 3 months after which i have rejoined my first organization in the same financial year. My first company has now dedcuted tax on previous leave encashment money even though I have joined with different emloyee ID & with new employee records. Please tell me if i am liable to pay tax eventhough I left the company as per rule 10 (10AA) & if not then can i claim tax rebate?
    Regards

    • @Prashant
      Its a tricky situation. I am not very sure but TDS would have been rightly deducted as you joined them back in same financial year.
      As now this company cannot issue Form-16 with non taxable leave encashment as you are still employed with them.
      New employee ID or record won't matter as you are still same person with same PAN information, so only one form-16 will be issued to you for whole year.

      • leave encashment received saying that he is resigning later on remployed in same org so whether leave encashment taxable?

        • @Snaha
          If employee again joins back in same organisation in same financial year then leave encashment may become taxable. As employer won't be able to show it non-taxable in form-16 as employee would be still employed there only.

  • what was the age to get Senior Citizen concession in Income Tax for FY 2011-12.
    What were the tax slabs for various categories for the FY 2011-12.

    • @Snaha
      Employer paying insurance premium on employees' behalf, would be taxable in hands of employees and will be considered part of salary only.
      Employee can claim deduction for same under 80-C.

  • At the time of retirement total of Basic Pay, Dearness Allowance, CCA and HRA for 8 months was paid as leave encashment. Whether the CCA and HRA are also taxable.

    • @K.M.Shanbhogue
      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

  • Hay pankaj hi

    How are you sir,

    I have a simple question about Leave-Encashment , when company encash 90 days salary in between employement, i'e L.E amount Rs:-150000/- what is the rate of tax deducted by an company???????

    • @Dhananjay
      Leave encashment between employment is fully taxable. This income would be added to your taxable income and taxed as per your slab rate (max 30% income tax).

      • hi,
        I have one sum that is X was in service for 7Ys 8 months, received leave encashment 4lakh. avg salary 35000 pm, calculate taxable leave salary
        thanks

        • @Shilpa
          In case you were not a Govt employee, the exemption is to be limited to minimum of all below:
          1. The cash equivalent of leave balance (max 30 days per year of service)
          2. Maximum of 10 months of leave encashment, based on last 10 months average salary
          3. Rs. 3 Lakhs

  • Our company has administered the Gratuity & Encashment through trust & open a account with LIC.Whether the amount of Gratuity & leave encashment received on Full & final settlement (not completed five years of service so the same amount will be paid by the company)from company is taxable.

    • @Kalyan
      Gratuity would be taxable if service is not of five years. But 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

    • @Radkhakrishnan
      Leave encashment received during the service is fully taxable like other salary components.

  • On superannuation I received following terminal benefits
    Provident Fund 11.25 Lac
    Gratuity 10.00 Lac
    Encashment 4.30 Lac
    Comutation of Pension 6.50 Lac
    Pl let us know
    How much amount in each above category is non taxable & on how much amount I have to pay tax. Total gross amount of salary received during F. Y. 2011-12 excluding above is Rs.2.77 Lac, I am a senior citizen now. Pl Reply. Thanks.

    • @Vijay
      1. Provident fund would be non taxable after five years of service.
      2. Gratuity would be non taxable after five years of service (max amount non taxable = 10 lakh)
      3. Leave encashment would be non taxable for central and state government employees and for others it would be limited to Rs 3 lakh
      4. Commuted pension received is wholly exempt from tax.

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