Claiming section 89 benefit for leave encashment during service

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dilip

21 Points Posted on 15 March 2017

I wish to claim relief u/s 89 for leave encashment during service. Due to inclusion of lumpsum amount in my income for FY 2016-17, I fall in 30 % bracket while I paid tax @ 20 % in earlier years. How can I bifurcate the lumpsum amount to earlier years ? Is there any thumb rule like 1/3 in previous 3 years etc. ? Kindly guide.

Replies (3)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

121546 Points Posted on 16 March 2017

Generally divided as per the number of leaves earned in each year.

Padmini

Coder

32 Points Posted on 31 July 2023

Hi Dilip, Thanks for your query. One thing I understand from your query is that claiming relief is only helpful when the tax slab for the year of Earning the leaves is lower than slabs of year in which encashment is credited. This helped.

Aashok Kumar Sharma

Finance/Compliance Consultant

77896 Points Posted on 07 November 2026

Leave encashment during service and Sec 89:

• Leave encashment received while in service is fully taxable salary. Relief under Sec 89 is available if it is "salary paid in arrears or in advance". Leave encashment during service is treated by CBDT as arrears relating to the years in which the leave was earned (Rule 21A(2)).

• Compute the relief: spread the encashment over the years in which the leave accrued (proportionate to leave days earned each year), compute the extra tax in each of those years versus the current year, and the difference is the relief.

• File Form 10E before the ITR. For FY 2016-17, the return time limits have long passed. A Sec 89 claim now can only be made through Sec 264 revision or condonation (Sec 119(2)(b)) if a refund arises. It isn't straightforward.