Leave encashment for a gov. bank employee

Date : 27-05-2022

PAYMENT OF LEAVE ENCASHMENT AT THE TIME OF

RETIREMENT IS FULLY EXEMPT FROM INCOME TAX

SINCE BEGNING i.e., 1961

As per Chapter-III of Income Tax rule clause 10 (10AA) Sub section 2^ndthe payment received by an employee other than central Government or State Government likewise Bank Insurance, PSU at the time of his retirement is fully exempt if you have received leave encashment payment at the time of retirement is less or equal to the entitlement of the Cabinet Secretary of Central Government. At present the salary of the Cabinet Secretary is 3.35 Lacs per month so his leave encashment entitlement is 33.50 Lacs. The employee who covered under subclause-II is entitled to take the exemption up to 33.50 Lacs as per rules. The existing rule is crystal clear there is no doubt. Central Board of Direct Tax also recently given a clarification in Nov. 2021 through a booklet named 75 Azadi Ka Amrit Mahotsav that this payment is non-Taxable if you have received a payment up to 10 months’ salary. (Copy enclosed) in this clarification it is very important that neither they have mentioned the condition of gazette notification nor the 3 lacs amount which was declared in the year 2002. The employee retired in financial year 21-22 and Tax deducted as source above 3 lacs payment are suggested to claim full amount exemption by filing income tax return for assessment year 2022-23.

For more clarification you may contact 9928991918 of M C Gupta

IS THIS TRUE? AS A RETIRED GRAMIN BANK EMPLOYEE, I FILED FOR EXEMPTION OF 3 LACK RUPEES IN LEAVE ENCASHMENT, WANT TO KNOW IF IT IS FULLY EXEMPTED?

Hey! Here’s a clear explanation regarding leave encashment exemption for government and bank employees:

Leave Encashment Taxability — Key Points:

For Government Employees (Central/State):
Leave encashment received at the time of retirement is fully exempt from tax under section 10(10AA) of the Income Tax Act.
For Non-Government Employees (including Banks, PSUs, Insurance, Private Sector):
The exemption is limited to the least of the following:
- Leave encashment received, or
- Amount calculated based on entitlement of the Cabinet Secretary of Central Government (which is taken as 10 months’ salary), or
- The actual amount of leave encashment received.
About the 3 Lakh Limit:
Earlier (2002), there was a fixed exemption limit of Rs. 3 lakhs for leave encashment received at retirement for non-government employees, but this is no longer applicable after judicial rulings and CBDT clarifications.
Recent Clarification (Nov 2021 by CBDT):
The CBDT’s booklet “75 Azadi Ka Amrit Mahotsav” clarifies that for employees of banks, PSUs, insurance companies, etc., leave encashment is exempt up to 10 months' salary (equivalent to the Cabinet Secretary’s entitlement), and this applies irrespective of any earlier limits.

In your case (Gramin Bank employee retired in FY 21-22):

If your leave encashment payment is up to the equivalent of 10 months’ salary of the Cabinet Secretary (approx Rs. 33.5 lakhs currently), then full exemption applies.
If TDS was deducted assuming only 3 lakh exemption, you can claim the full exemption while filing your ITR for AY 2022-23 by submitting proof and calculating exemption as per Section 10(10AA).

What you should do:

File your Income Tax Return for AY 2022-23.
Claim the exemption on the full amount of leave encashment received (up to 10 months' salary limit).
Attach a note or keep documentation showing the CBDT clarification and your salary details.
You can also consult a tax expert or contact the number you mentioned for more personalized advice.

Summary:

Yes, the leave encashment received by you as a retired Gramin Bank employee is fully exempt up to the limit of 10 months’ salary of Cabinet Secretary, which is much higher than Rs 3 lakhs. So you can claim full exemption in your ITR.