Leav encshmnt onlyprofessional practically handle i. t. answ

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This query is : Resolved

Sanjana (Querist)

17 November 2011 How Leave Encashment deduction would be calculated as per The Income Tax Act, 1961 in the following scenario:
Date of Joining: 01-April-2009
Date of Resignation: 12-September-2011
As per Company 24 Paid leave is given every year.
Leave available as per company: 24+24+11=59
Leave taken by employee: 12
Leave Lapsed: 17
Leave at credit: 30
The employee is paid Leave Encashment on the basis of last month’s Salary (Basic + D. A.) for 30 days.

To calculate the deduction for Leave Encashment as per The Income Tax Act, 1961, following would be the working:
Leave available as per Income Tax Act, 1961: 24+24=48 (Leave for only two years is considered as per I. T. Act because it says number of completed years of service and the maximum allowed for each completed year is 30)

Now from this 48, to arrive at the leave to the credit of employee what should be reduced:
a) 12 which is leave actually taken by the employee during his entire tenor of service or
b) 29 (i.e. 12+17) which would be leave actually taken by the employee plus leave lapsed.
Note that the Income Tax Act says nothing about this. Subtracting 12 from 48 would be more beneficial to the employee. But I would like to know from the professional handling taxation matters in the company as to what approach is followed practically supported with REASONS….

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

19 November 2011 As you have mentioned that 30 days leave has been encashed , then this only will be the least amount.
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It is not understandable that why you want to go for (48-12=36 days) leave.
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The amount actually received will only be exempt.

Sanjana

Sanjana (Querist)

20 November 2011 I want to go for 48-12 or 48-29 because Leave at credit is defined as per the Income Tax Act and to arrive at leave at credit as per The I. T. Act, I will have to reduce 12 or 29 from 48.

This is due to the fact that although employee was eligible for 59 days of leave during the entire tenor of his service with the company as per his company's rules, he is only eligible for 48 days of leave as per The Income Tax Act, 1961 which will reduce the amount of deduction available to him....

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

22 November 2011 According to income tax rules you have to deduct 12 from the entitled leave of 48 days as IT prescribes that leave actually taken has to be reduced from the Leave entitlement.
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I could not understood as why the leave of 17 days lapsed. But it can be said that, in no way it reduces either the leave entitlement or the leave actually taken, as due to any reason amount of 17 days is not being paid but in no case it can be said that the assessee had taken leave for these 17 days.
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