Tax on leave encashment

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 March 2012 In PSU , there ar two types of people one getting pension and others not getting pension. If at the time of VRS if person -eligible for pension gets leave encashment , whether it will be taxable ? and wht if the person from secong lot -(not eligible for pension)- gets leave encashment -is it taxable.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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31 March 2012 Least of the following is exempt under section 10(10AA)(ii) :
(a) Leave encashment in respect of the period of earned leave standing to the credit of employee at the time of retirement/superannuation.
[Earned leave entitlement not to exceed 30 days for every year of actual service rendered for the employer]
(b) 10 months ‘average salary’
(c) Amount specified by government [Rs. 3,00,000 (Where the retirement is on or after 1-4-1998)].
(d) Amount actually received.
Eligibilty for pension will not have any impact
CA MANOJ GUPTA
JODHPUR
09828510543

Querist : Anonymous

Querist : Anonymous (Querist)

31 March 2012 sir, thanx but wanted to know whether psu--bsnl employees come under govt employee category. the reason for i asking this is , bsnl was carved out of deprtment of telecom by shifting people. -- so those people whether they fall under govt cat?. IT IS CLEAR THAT new people recruited by bsnl will not faLl under govt employees. . PLS CLARIFY ABOUT THE OLD ONES.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Great question about leave encashment tax in PSU, especially BSNL employees!

Here's a clear breakdown:

### Taxability of Leave Encashment under Section 10(10AA)

The exemption on leave encashment applies whether the employee is eligible for pension or not. The key points are:

* **Exemption Limit**: Least of the following is exempt from tax:

* (a) Leave encashment for earned leave standing to the credit at retirement (earned leave entitlement max 30 days per year of service)
* (b) 10 months' average salary
* (c) Rs. 3,00,000 (as notified by government for retirement on or after 1-4-1998)
* (d) Amount actually received

* **Eligibility for pension** does **not** impact tax exemption.

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### Are BSNL Employees Considered Government Employees for Tax?

* **Pre-carved-out employees (before BSNL was formed)** who were shifted from the Department of Telecom are **considered government employees**.
* New employees recruited **after BSNL formation** are treated as **non-government employees**.

This distinction matters because government employees typically get the benefit of exemption as above under Section 10(10AA). For BSNL employees who were formerly DoT employees, the tax benefits of govt employees on leave encashment apply.

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### Summary for BSNL employees:

| Employee Category | Leave Encashment Tax Treatment |
| ---------------------------------- | --------------------------------------------------------------------------------------------------------- |
| Old employees (shifted from DoT) | Eligible for govt employee exemptions under Section 10(10AA) |
| New BSNL recruits (post formation) | Taxed as non-government employees; same exemption applies but with different rules for non-govt employees |

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### Additional Notes:

* For **non-government employees**, leave encashment received at retirement is exempt up to **Rs 3,00,000** (if retired after 1-4-1998).
* Leave encashment received **during service** (like at resignation or VRS) is **fully taxable**.

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If you want, I can help you draft a specific explanation or calculation example for your case. Would that help?

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