Leave Encashment Exemption Computation - in Private Company
This query is : Resolved
10 December 2024
I resigned from services of private IT company in July 2024 and not employed anymore. I was given "Leave Encashment" (under that head itself) as part of Full and Final settlement, but company has included "Leave Encashment" FULLY as taxable salary in their tax computation sheet.
I am in New Tax Regime and my questions are :
1. Can I claim Leave Salary Exemption under Section 10(10AA) ? and to claim this do I have to fill in Form 10e prior to filing my ITR for AY2025-2026.
2. How to compute Leave Salary Exemption under Section 10(10AA) ? I was given Leave Encashment based on full salary of July 2024 for 45 days. As per company rules, every year we were eligible for 15 days Earned Leave which can be accumulated for "maximum encashable" 45 days and rest of EL lapses.
I am not clear on how to calculate the Leave Cash Equivalent in this condition, considering I have worked for 21 years in the same organization.
Appreciate help.
I am in New Tax Regime and my questions are :
1. Can I claim Leave Salary Exemption under Section 10(10AA) ? and to claim this do I have to fill in Form 10e prior to filing my ITR for AY2025-2026.
2. How to compute Leave Salary Exemption under Section 10(10AA) ? I was given Leave Encashment based on full salary of July 2024 for 45 days. As per company rules, every year we were eligible for 15 days Earned Leave which can be accumulated for "maximum encashable" 45 days and rest of EL lapses.
I am not clear on how to calculate the Leave Cash Equivalent in this condition, considering I have worked for 21 years in the same organization.
Appreciate help.
14 December 2024
As per section 10(10AA) of the Income Tax Act
Received at the time of retirement: –
a. In case of government employees – fully exempt
b. In case of non-government employees – exemption is the lower of the followings: –
1. Leave encashment received
2. Rs. 25 Lakhs
3. 10 months of average salary
4. leave credit in days /30 *Average salary
Salary Includes: – Basic + Dearness allowance (forming part of salary) +commission (if received as a % of turnover )
Average salary means the salary drawn by an employee during a period of 10 months preceding the date of retirement/10 Average salary = Salary for last 10 months divided by 10 months
Rules to be remembered while calculating the leave credit in months
1. For leave allowed, Income Tax has a ceiling of 30 days per year
2. Consider completed no of years of service.
Received at the time of retirement: –
a. In case of government employees – fully exempt
b. In case of non-government employees – exemption is the lower of the followings: –
1. Leave encashment received
2. Rs. 25 Lakhs
3. 10 months of average salary
4. leave credit in days /30 *Average salary
Salary Includes: – Basic + Dearness allowance (forming part of salary) +commission (if received as a % of turnover )
Average salary means the salary drawn by an employee during a period of 10 months preceding the date of retirement/10 Average salary = Salary for last 10 months divided by 10 months
Rules to be remembered while calculating the leave credit in months
1. For leave allowed, Income Tax has a ceiling of 30 days per year
2. Consider completed no of years of service.
14 December 2024
Dhirajlal Sir.. thanks for the reply.
Is this section 10(10AA) for Leave Encashment exemption admissible only for 'Retirement' ? I read on internet that it is admissible even on 'Resignation' from service. Kindly clarify.
Is this section 10(10AA) for Leave Encashment exemption admissible only for 'Retirement' ? I read on internet that it is admissible even on 'Resignation' from service. Kindly clarify.
14 December 2024
Section 10(10AA) does indeed provide tax exemption for leave encashment upon both retirement and resignation, allowing employees to benefit from this provision regardless of their departure method from service.
14 December 2024
Thanks a ton Dhirajlal sir..
Believe I have to fill form 10e on IT portal prior to claiming this exemption in AY2025-2026 ?
Believe I have to fill form 10e on IT portal prior to claiming this exemption in AY2025-2026 ?
14 December 2024
Form 10E is a crucial document for individuals seeking tax relief under Section 89(1) of the Income Tax Act, 1961. This form is specifically designed for taxpayers who have received salary arrears or other income that was due in previous financial years but received in the current year.
Have you received your salary as arrears?
Have you received your salary as arrears?
14 December 2024
No Sir, not as arrears. This Leave Encashment was given as part of Full & Final settlement on resignation from company. Gratuity was also given separately.
Since, I read in this website itself that form 10e has to be filled prior to claiming exemption U/S 10 (10AA) and before filing ITR, hence the question.
Since, I read in this website itself that form 10e has to be filled prior to claiming exemption U/S 10 (10AA) and before filing ITR, hence the question.
14 December 2024
If an employee gets leave encashment while on his job, that amount becomes fully taxable and forms part of ‘Income from Salary'. However, he/she can claim some tax benefits under Section 89 of the Income Tax Act. S/He may fill up Form 10E to claim the tax relief for salary arrears on leave encashment. But it is exempt on retirement, no need to fill that form 10E.
15 December 2024
Thanks a lot for detailed reply and help, Dhirajlal Sir.
15 December 2024
You are welcome.
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