Provision for leave encashment

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This query is : Resolved

Soumya Bhat (Querist)
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07 April 2013 Dear Sir,

As per company policy any leave balance eligible for encashment is paid to the employee based on the basic pay (Basic component of CTC).

However for Actuarial Valuation per AS15 we are supposed to value at Gross salary.

Query

If the company carries the provision at gross and pays at the basic rate the provision will always be more. Legally is it ok to do that way. Are we supposed to pay the employees also based on Gross Salary ?

Ex:

Employee A has 10 Days leave to his credit for encashment.
His basic pay is INR 100
His Gross pay is INR 150

Per books the provison we make is for 1500 but if he leaves we pay INR 1000 leaving 500 still in provision.

Is the company supposed to pay INR 1500?

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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28 May 2013 It is very simple. Any company can make their rules for leave encasement either on the basis of basic or gross. Whatever amount is paid for Leave encasement is taxable if it is received during the tenure of service and if it is encased after retirement it is exempted.

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