HC makes 'leave encashment' less taxing !
NEW DELHI: Companies providing for leave encashment payments in their books can now claim tax deduction even if the actual cash payouts have not taken place. Providing for leave encashments is mandatory under ICAI accounting norms for companies. However, companies were unable to claim a deduction for the encashments if there was no actual cash outflow due to a provision in the Income-Tax Act.
The government had carried out an amendment in Section 43B(F) of the Income-Tax Act in 2001. As per the amendment, companies could claim deduction only for actual cash flow and not for the provisions made.
According to a recent ruling by the Calcutta High Court, companies will be able to claim deduction based on provision for leave encashment. The decision came in response to a petition filed by Exide Industries. The court has termed the amendment carried out by government as arbitrary and struck it out.
“What the high court has held is for other items covered under Section 43B like statutory duties, payments to excise department, contribution to provident funds and interest payments to banks. Giving deduction only on account of actual cash outflow was appropriate as public money was involved in the payments and the government wanted to stop misuse of public money.
However, leave encashment is not a statutory liability and does not involve public money. The decision will help companies as they would be able to claim deduction for the payouts and would reflect on their balance-sheet,” PricewaterhouseCoopers executive director Rahul Mitra said.
The amendment was brought in by the government to nullify a Supreme Court verdict given in the case of Bharat Earth Movers. The high court pointed the original Section 43B did have the sub-section F covering leave encashments. Section 43B was brought in only to prevent evasion of statutory liability and sub-section F was inserted in 2001 only to nullify the apex court’s decision.
News posted by
CCI News Desk
Finance news reporter covering taxation, GST, income tax, business compliance, and economy updates. I simplify complex financial topics into easy-to-understand articles for professionals, taxpayers, and business owners on leading finance and tax platforms.
Recent News :
- CBDT Clarifies Tax Treatment of BSNL and MTNL VRS-2019 Compensation Under Section 10(10C)
- New RBI Export Rules Raise Paperwork Concerns for Freelancers and Small Businesses
- MCA21 V3 Portal Login Failures and Errors Disrupt Annual Return Filings for Professionals
- GST Reforms to Begin from 1st Nov 2026: Major Changes from April 2027
- Equity Tax Debate Intensifies as Investors Seek STT and LTCG Relief
- CBIC Appoints Common Adjudicating Authority for 7 Customs Notices Against Amway India
- GST Council Proposes Removing ITC Blocks to Reduce Business Tax Costs
- GST Council Proposes Simpler Compliance Amid Heavy Tax Payments and ITC Challenges
- CBDT Exempts Maharajah INR Bond Interest from TDS for Tax Year 2026-27 Onwards
- CBDT Notifies Form 173A for Tax Exemption Claims on Govt Securities Under Income Tax Act 2025
Popular News
- Tax Audit Extension Demand to 31st Oct 2026 Amid GST Relief and Court Rulings
- Central Excise Duty Revised to Rs 2.5 and Rs 8.5 Per Litre from 16th October 2026
- ICAI Issues New Tender Guidelines for Practising CAs, Bars Bids Without Minimum Fees
- TDS Challan for FY 2025-26 Valid for TY 2026-27 Under Cross-Year Utilisation Rules
- GSTN Introduces New e-Invoicing Facility for Reverse Charge Transactions: RCMDOM and RCMIMP Explained
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
