TDS Leave Encashment as Arrear whether to be taxed based on Previous year?

Hello,

Govt had notified increase in Leave Encashment Limit for Non Govt Employees to 25 Lakh wef 01.04.23. A person (private employeee) retired on 28.02.23( where in he felled under bracket of 30 % tax)  and is now getting Leave Encashment as arrears in June 2023( now after retirement he falls under 20 % bracket of Income tax).

As Leave encashement is part of Salary as per Section 15 , which is based on due or paid basis , whichever is earlier, so TDS to be deducted from Leave encashment will be 30 % bracket or 20 % bracket?

Please help

Replies (3)
Quick Summary
This discussion explores the correct tax treatment for leave encashment received as arrears after retirement. Specifically, it questions whether the TDS should be deducted based on the employee's tax bracket in the year of retirement or the year the arrears are paid. The advice suggests checking Form 16 for the relevant financial year and the payment disbursal letter to determine the correct tax bracket for TDS deduction.

Check his form 16 for both the FYs and the payment disbursal letter of LE, and decide.

Sir,

FY 23 -24 can only be an estimate and Form 16 cant be there, as its still going on. however after retirement salary become nil so now in 20 % bracket

As per rule it is to be included in FY 2022-23, if it's included in form 16 of the relevant year. But in other case, you can take chance.

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