Exemption of Leave Encashment

Employees are eligible for various leave while in service .Employee usually take some leave during the year as per company policy and balance leave will remain unavailed for the year. For example employee is eligible for 20 leave and he avail only 5 leave during the year hence 15 leave will remain unavailed. Generally encashement of  accumulated leave can be done only at the time of leaving the company by way of resignation or retirement.Always one wonder regarding Exemption of Leave Encashment and how much one can get encashment after exemption.

Encahment of Leave during the service is fully taxable hence no exemption is allowed.

Exemption of Leave Encashment at the time of retirement/resignation:

1. Central and State Government Employee: As per section 10(10AA)(i) of income tax act , leave encashment received by State and Central Government Employee at time of retirement or resignation is fully exempt from tax.

2. Other than Central and State Government employee: Minimum of four amount is allowed as Exemption from Leave Salary Encashment:

i. Leave encashment actually received by employee

ii. 10 Months’ average salary

iii.Cash equivalent of unavailed leave calculated on the basis of maximum 30 days leave for every year of actual service rendered by employee from whose service he/she has retired or resigned. cash equivalent would be on the basis of average salary.

iv. Amount specified by Government . i.e. Rs. 3,00,000

Salary Definition:

Salary + D.A.(to the extent it is part of retirement benefit) + commission based on fixed percentage of turnover achieved by him is considered for calculation of exemption of leave encashment

Average Salary Meaning:

Average salary of last 10 Months drawn by employee immediately preceding his retirement or resignation.

Print Friendly, PDF & Email
Tagged with:
6 comments on “Exemption of Leave Encashment
  1. B.R.Bisht says:

    Dear Sir,
    Any employee(private sector) receiving Leave Encashment after resignation.Weather is it taxable or not?

    Regards,
    B.R.Bisht

    • Admin says:

      Leave Encashement receive at the time of retirement is eligle for exemption under section 10(10AA). Whether such retirement is on superannnuation or otherwise.

  2. sudha says:

    if the employee worked for 1 year at the end i.e 31st march he wants to enhance their earned leave 14 days with their last drawn salary
    so, now what is the tax treatment for the earned leave calculation at the time of employment, pls state whether it should be taxable or not, taxable means what are all the calculations i will have to consider this…

    • sudha says:

      if the employee worked for 1 year at the end i.e 31st march he wants to enhance their earned leave 14 days with their last drawn salary
      so, now what is the tax treatment for the earned leave calculation at the time of employment, pls state whether it should be taxable or not, taxable means what are all the calculations i will have to consider this…

  3. S says:

    I received about 1 lakh leave encashment from employer on resignation from a private company in October 2013. Employer has deducted tax for the same and information is there in Form 16. This amount is less than the 3 Lakh limit. I want to claim exemption for it under 10(10AA).

    Which ITR Form (ITR-1,ITR-2,ITR4 etc.) should I use for claim the exemption, so that I get the refund for the deducted tax ?

  4. murty says:

    sir, every employee claim surrender leave (Encashment leave for 15 days or 30 days)income tax eligible or not please kindly sent reply

Leave a Reply

Your email address will not be published. Required fields are marked *

*