Leave Encashment Tax Exemption for Government Employees – Income Tax Rule 10(10AA)
For tax treatment of leave encashment u/s 10(10AA) of Income Tax Act 1961 the employees has been classified into two types :
- Government Employees
- Non-Government Employees
Government Employees
As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is exempt from tax.
In Simple, any payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt.
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Non-Government Employees
In the hands of non-Government employee exemption will be least of the following:
Least of the following shall be exempt from tax:
a) Amount actually received
b) Unutilized earned leave* X Average monthly salary
c) 10 months Average Salary**
d) Rs. 3,00,000
* While computing unutilized earned leave, earned leave entitlements cannot exceed 30 days for each completed year of service rendered to the current employer
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** Average salary = Average Salary*** of last 10 months immediately preceding the retirement
***Salary = Basic Pay + DA (to the extent it forms part of retirement benefits)+ turnover based commission
Ready Reckoner
|
Sl. No |
Leave encashment |
Taxability for Government Employees |
Taxability for Non-Govt Employees |
|
1 |
During period of service |
Fully taxable |
Fully taxable |
|
2 |
At the time of retirement or separation (other than on account of Termination) |
Fully exempt |
Leave Exemption is least of the following: |
|
3 |
At the time of termination of employee |
Fully taxable |
Fully taxable |
Source :https://www.incometaxindia.gov.in
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