terminal surrender

Terminal leave encashment is exempt under Sec. 10(10AA), subject to the limits prescribed therein. Presumably, the reader's question relates to an amount in excess of the ceiling prescribed under Sec. 10 (10AA). Since such excess amount is treated as part of salary, it will be assessable in the same manner as salary.

Salary income is assessable on due basis under clause (a) of Sec. 15 of the Incometax Act, 1961 and on payment basis under clause (b), while clause (c) provides for taxation of arrears of salary in the year of receipt, if not charged in an earlier year. Explanation 1 to Sec. 15 provides that there should be no double taxation, so that what is taxed will not be taxed again. Though no option is specifically provided for choosing the basis of tax, it would appear that where salary is received before it becomes due, it may be assessable as advance salary. Where it has become due before it is to be paid, it would be assessable on due basis. However, Sec. 192 providing for tax deduction at source provides that tax will be deducted at the time of payment. It is possible to take the view that, in matters like leave encashment, unless employer reckons the amount due to the assessee and sanctions the same, it does not become due, so that it can be treated as having become due on payment. The assessing officer would ordinarily expect the assessee to report his income according to the TDS certificate. In this view also, the assessee may be justified in offering the taxable amount in the year of receipt and not on the day on which he leaves service on superannuation, since all amount due to him is not always determined either on that date or before that date. In fact, in the case of leave encashment, the availability of leave will have to be reckoned with reference to leave availed till the date of superannuation.

Exempt upto Rs. 3 lakh.

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