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Taxability of Leave Encashment

Sandeep Nair (Asst. Manager- Finance) (28 Points)

31 March 2010

Hi,

What is the definition of "Retirement" with regard to Leave Encashment?

Is Leave Encashment taxable while an employee encashes his/her earned leave while he/she quits the organization (Private Organisation, Non-Govt.)?

Regards

Sandeep Nair

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6 Replies

SHUVRO ( (WANT TO LEARN) ) (175 Points)
Replied 01 April 2010

Mr Nair

If he is a private organisation employee then,

(1) LE is 100% taxable if encashed during service

(2) If encashed after retirement/leaving the job then,the following of the 4 is exempted from the LE received

a. Rs 300000

b. LE actually received

c. 10 months average salary

d cash equivalent of unavailed leave calculated on the basis of max 3days leave for 1 yr.The cash equivalent to be calculated on basis of average salary.

********** However he can claim releif u/s89(1)

praveen (Chartered Accountant) (6971 Points)
Replied 01 April 2010

Originally posted by : Sandeep Nair
	Hi, What is the definition of "Retirement" with regard to Leave Encashment? Is Leave Encashment taxable while an employee encashes his/her earned leave while he/she quits the organization (Private Organisation, Non-Govt.)? Regards Sandeep Nair

Yes. if one quits an organisation also it is retirement

Amir (Learner) (4016 Points)
Replied 01 April 2010

Dear Sir,

Agree with friend Praveen......

Just supporting his statement with this -

‘Retirement’ includes resignation - What is relevant is ‘retirement’; how it took place is immaterial for the purpose of this clause. It is, therefore, clear that if on retirement, even on resignation, by the employee, an employee gets any amount by way of leave encashment, section 10(10AA) would apply and the assessee will be entitled to the benefit of the said clause to the extent mentioned therein - CIT v. D.P. Malhotra [1997] 142 CTR (Bom.) 325/CIT v. R.J. Shahney

Raj Saxena (1412th Tiger) (Struggling Student) (272 Points)
Replied 01 April 2010

Originally posted by : SHUVRO
	Mr Nair If he is a private organisation employee then, (1) LE is 100% taxable if encashed during service (2) If encashed after retirement/leaving the job then,the following of the 4 is exempted from the LE received a. Rs 300000 b. LE actually received c. 10 months average salary d cash equivalent of unavailed leave calculated on the basis of max 3days leave for 1 yr.The cash equivalent to be calculated on basis of average salary. ********** However he can claim releif u/s89(1)