If leave encashment is received during the continuity of employment, it is chargeable to tax, irrespective of the fact whether the employee is in government service or private service. The employee can, however, claim relief in terms of Section 89. 2.Leave encashment at the time of retirement on superannuation or otherwise
**LEAVE SALARY AND ITS DEDUCTION** Leave encashment is when employee has leaves to the credit and he has not availed those leaves then these leaves will be encashed by the employer and it will be paid in addition to the salary. If the leaves are encashed during the time of service then no exemption can be claimed. it is fully taxable If encashment is at the time of retirement exemption is available on amount received as leave salary. For availing exemption two types of employees are categorized government employee and other employees For government employee it is fully exempt from tax For other employees least of the following is exempt --Leave encashment actually received --10 months average salary --Cash equivalent of unavailed leaves calculated on the basis of maximum 30 days leave for every year of completed service -- amount specified by the government i.e rupees 3,00,000 Thanks
Leave salary is a part of salary received by Employee from his Employer or Former Employer on leave to Any Place of India. We can get deduction on leave salary under section 10(10AA) but Leave Encashment received during the period of service is always taxable. If the employee receives leave salary from more than 1 employer then the aggregate amount of Leave Salary exempt doesn’t exceeds the limits prescribed. If Leave Salary received from former employer was exempted, then the exempted amount shall be reduced from 3 lakhs. Amount received to Govt employee on retirement is exempted. Minimum of the following are exempt :- 1. 300000 lakhs 2. 10 months average salary@ 3. Cash equivalent of leave to the credit of the employee at the time of retirement on the basis of 10 month average salary@ calculated 30 days credit for each completed year of service. 4. Amount received. @ Salary means Basic Pay + D.A. (retirement benefits) + Commission (Fixed %) preceding the date of retirement. Sums equivalent of leave salary received by the family of a Govt. servant who died in harness, is not taxable in the hands of the recipient. The exemption is available in respect of cash equivalent of earned leave at the employee’s credit only at the time of retirement, whether such retirement is on superannuation or otherwise. Under Circular No. 431 relief U/s 89(1) would be admissible in respect of encashment of leave salary by an EE while in service.
Hie Roshni, **Definition of Leave Salary :-** If leave standing to the employee's credit is not taken within a year, as per the service rules it may lapse or it may be encashed or it may be accumulated. The accumulated leave standing to the credit of an employee may be availed by the employee during his service time or, subject to service rules, such leaves may be encashed at the time of retirement or leaving the job. Encashment of leave by surrendering leave standing to one's credit is known as 'leave salary'. **Deduction of Leave Salary :-** 1. If leave encashment is received during the continuity of employment, it is chargeable to tax, irrespective of the fact whether the employee is in government service or private service. The employee can, however, claim relief in terms of Section 89. 2.Leave encashment at the time of retirement on superannuation or otherwise -- even such leave encashment is taxable, however, subject to the exemptions provided by Section 10(10AA) as follows: - Leave salary at the time of retirement to central/state government employees - In the case of central/state government employee, any amount received as cash equivalent of leave salary in respect period of earned leave at his credit at the time of retirement/superannuation, is exempt from tax [Section 10(10AA)(i)]. - Leave salary at the time of retirement to other employees - In the case of a non-government employee, leave salary is exempt from tax to the extent of the least of the following: - Cash equivalent of the leave salary in respect of the period of earned leave standing to the credit of employee at the time to retirement/superannuation (earned leave entitlements cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired); or - 10 months' 'average salary'; or - Rs 300,000 (applicable from April 1, 1998) - the amount of leave encashment actually received at the time of retirement.