Taxability of Leave Encashment

In case of Non-Government employee, Leave Salary received on Resignation or Retrenchment is taxable. Of course, relief u/s.89 r.w.rule 21A would be admissible. However, Leave Salary received on Voluntary Retirement or Compulsory Retirement is exempt u/s.10 (10AA) (ii) to the extent specified therein. The scope of said section is extended to Leave encashment at the time of retirement whether such retirement is on superannuation or otherwise. The word “otherwise” covers  the case of  Voluntary Retirement from service as held by Madras High Court in CIT vs. R V Shahney (159 ITR 160).