Dear Members,
I just wanted to know (clarification on) tax applicability of Leave Encashment, as I am already on notice period.
My organization has encashed leaves for all the employees (being acquired and changed policies regarding carry forward leaves) for the balance leaves more then limit of carry forward.
Still Full and Final Settlement is remaining (Last Working Day as per Notice)
As per my understanding In my case (As per Section 10(10AA) [ii] of the IT Act) Leave Encashment should/will not be taxable, If employee already resigned or under notice of resignation.
Extract is as following.
As per Section 10(10AA) of the IT Act, leave encashment is exempt to the extent of the lower of the following:
Amount actually received from the employer as leave encashment; or
Cash equivalent of leave (to be calculated on the basis of a maximum of 30 days of leave per year); or
10 months' average salary (salary refers to the last drawn basic salary, dearness allowance and commission based on a fixed percentage of turnover); or
The amount prescribed by the government of India, i.e. Rs. 3 lakh.
It is fully / partially exempt from tax in some cases under Section 10(10AA) [ii]
For Non-Government employees. Any payment received as leave encashment at the time of retirement or on leaving job otherwise shall be exempt up-to the least of following amounts u/s 10 (10AA)(ii)
- Maximum 10 months’ salary on the basis of average salary drawn during 10 months immediately preceding his retirement/leaving job otherwise.
- Salary for approved period of leave standing to his credit at the time of retirement/leaving job otherwise.
- Maximum notified limit 3,00,000 (As specified by the central government)
- Actual amount received as leave encashment and balance shall be taxable
