Taxability of leave encashment

TREATMENT OF LEAVE ENCHASHMENT [section 10(10AA)]

(a) Government employees: fully exempt.

(b) Non-government employees: exempt from tax to the extent of least of the following :

                    i.            Rs.3,00,000 [this limit for whole life]

                  ii.            Leave salary actually received

                iii.            10 months’ average salary*

                iv.            Average salary* of unavailed leaves (total leave entitlement max. 30 days per completed year)

* Average salary: 10 months salary preceding the date of retirement or death

Salary = Basic salary + D.A. if terms Provide for retirement benefits + commission (fixed percentage of turnover.)

Note:

Ø  Leave salary received during the period of service is fully taxable. [CIT v. Vijay Pal Singh]

Ø  Ceiling limit for whole life is Rs. 300000.00