Leave Encashment [Section 10(10AA)]:
Leave Encashment during service is fully taxable in all cases, relief u/s 89(1), if applicable, may be claimed for the same.
Payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt.
In case of other employees, the exemption is to be limited to a maximum of 10 months of leave encashment, based on last 10 months average salary. This is further subject to a limit of Rs. 3,00,000/-.
Leave salary paid to legal heirs of a deceased employee in respect of privilege leave standing to the credit of such employee at the time of death is not taxable.
Provided that where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under sub-clause 42 shall not exceed the specified limit i.e. Rs. 300000/-.
For the purpose of Section 10(10AA), the term ‘Superannuation or otherwise’ covers resignation.