Income Tax Rules - Leave Salary / Leave Encashment and Income Tax Exemption / Taxable Amount Calculator
What is Earned Leave
Normally every
employee is entitled to certain no. of leaves per annum. and if this leave is
not availed then it will be accumulated subject to certain maximum limit such
unutilized either get lapsed or get carry forward which can be enchased later
at the time of retirement/otherwise or on leaving the employer, pay equivalent
to leave remaining unutilised in the employee account will be paid to employee.
(rules varies from organisation to organisation). This type of leave is called
Earned Leave (In PSU Banks it is also called as Privilege Leave) and amount
received in lieu of this unutilised amount is called leave salary/leave
encashment.
The taxation of Leave salary for various categories of employees is shown here under:
1.
Leave Encashment - During
Continuity of Employment - By Government / Non-Government Employee
Leave salary received
by any employee during the period of service is fully Taxable. However relief
can be claimed under section 89.
2.
Leave Encashment - At the time of
Retirement / Leaving job - By Government Eemployee
Leave salary given to
Central / State Government employees at the time of retirement / superannuation
in respect of period of earned leave at his credit, it is fully exempt from tax
under section 10(10AA)(i).
3.
Leave Encashment - At the time of
Retirement / Leaving job to other employee (non Central & State Government
employee)
Leave salary given to
Non-Government employee, the PSU banks employee and other PSU sector employees
comes under this category and in their cases least of following will be
exempted under section 10(10AA)(ii)
1.
Leave Encashment Actually received.
2.
Last 10 Month average salary (average salary explained below)
3.
Maximum amount fixed by the Government from time to time,
Presently it is Rs. 300000/- lac (given below)
4.
Period of earned leave (in no. of months) to the credit of the
employee at the time of his retirement leaving the job X Average monthly
salary.
Note
1.
As per Income Tax rules Earned Leave entitlement for Encashment
at the time of retirement / superannuation / leaving job can not exceed 30 days
for every year of actual services rendered for the employer from whose services
he has retired to the Leave Balance
2.
Leave Salary paid to Legal heirs of deceased employee in respect
of privilege leave standing to the credit of such employee at the time of death
is not taxable.
3.
Leave salary received by family of Government employee who died
in harness, is not taxable in hands of the recipient
How to find out Average monthly salary?
'Average Salary' for
the aforesaid purpose is to be calculated on the basis of salary drawn during
the period of 10 months immediately preceding the date of retirement. Here,
salary, for this purpose, means basic salary and includes dearness Allowance if
terms of employment so provide. It also includes commission based upon fixed
percentage of turnover achieved by an employee, (if any).
The PSU Banks and
other organisations includes the basic components of the Special Allowance,
Fixed Pay and Professional Qualification Allowance which are included in their
superannuaton benefits i.e their organisation is deducting PF on these
allowances.
Maximum Amount Specified to be exempted From Income Tax
The following table
shows the ceiling of amount exempt from Income Tax revised from time to time
|
Date
of retirement/ Superannuation
|
Amount
|
|
before 1.1.1982
|
25550
|
|
1.1.1982 to 30.06.1986
|
30000
|
|
01.07.1986 to 31.12.1986
|
73400
|
|
01.01.1987 to 30.06.1987
|
75600
|
|
01.07.1987 to 31.12.1987
|
77760
|
|
01.01.1988 to 31.03.1995
|
79920
|
|
01.04.1995 to 30.06.1995
|
130320
|
|
01.07.1995 to 01.07.1997
|
135360
|
|
02.07.1997 to 01.04.1998
|
240000
|
|
02.04.1998 onwards
|
300000
|