Mr.S is salaried Person , Resident Indian.
During the financial year in month of april he received leave encashment of amount say for example 10,000, during time of employment
In month of September, he have taken excess leave due to which 5000 is deducted as Leave Deduction, during time of employment
So, at the end of the day, what will be tax implications? Will 10,000-5000=5000 considered as leave Encashment? Or any other treatments?
Leave encashment during service is taxable:
• Leave encashment received while in service (not at retirement or resignation) is fully taxable as salary (no 10(10AA) exemption). Sec 89 relief can apply, since it relates to leave earned in earlier years.
• At retirement or resignation (non-government), the exemption under 10(10AA)(ii) is the least of: actual received; 10 months' average salary; leave credit (max 30 days per year of service) × average salary; Rs 25 lakh (lifetime, from 1 April 2023).
• "Leave deduction" (salary cut for unpaid leave) simply reduces salary. There's no separate tax treatment.
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