Many organisation provide the facility of Leave Encashment (by whatever name called be it earned leave, sick leave etc) either
1) during the period of employment or
2) at the time of retirement (including separation on account of resignation, retrenchment, VRS etc other than termination) of the employee or
3) at the time of Termination of the employee
For tax treatment of leave encashment u/s 10(10AA) of Income Tax Act 1961 the employees has been classified into two types:
1) Govt Employees and
2) Non-Govt employees (PSU employees are considered as non-govt employees)
The tax treatment of Leave encashment is explained with the help of following table:
| S.N | Leave encashment timing | Taxability of Leave Encashment for Govt Employees | Taxability of Leave Encashment 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: 1) Rs 3,00,000 2) Leave encashment amount actually received 3) 10 months’ salary (on the basis of average salary of last 10 months ) * 4) Cash equivalent to leave to the credit of employee at time of retirement ** |
| 3 | At the time of termination of employee | Fully taxable | Fully taxable |
* Here salary means Basic + Dearness Allowance (forms part of pay) + Commission (Fixed % on turnover)
** Cash equivalent to leave to the credit of employee at time of retirement is
= {(A X B) – C} X D
Where
A) No of completed year of service (excluding part of the year)
B) Number of leave credited each year (Subject to maximum of 30 leave per year)
C) Number of leave taken or leave encashed during period of employment
D) Average salary for last 10 months
The following additional points should be noted:
i. Where leave salary is received from two or more employers in the same year, then the aggregate amount of leave salary exempt from tax cannot exceed Rs 3,00,000
ii. Where leave salary is received in any earlier year from a former employer and again received from another employer in a later year, the limit of Rs 3,00,000 will be reduced by the amount of leave salary exempt earlier.
iii. Relief u/s 89 read with Rule 21A can be claimed by the employee in cases where the amount of leave encashment is fully taxable.
iv. Leave salary (or leave encashment) received by the legal heir of the deceased employee is not at all taxable in the hands of his legal heirs (F.35/1/65-IT(B), dated 5-11-1965)
The treatment of leave salary/ Leave Encashment can be explained with the help of an example:
Example: Mr. Gupta retired on 1.12.2017 after 20 years 10 months of service, receiving leave salary of Rs 5,00,000.
Other details of his salary income are:
Basic Salary : Rs 5,000 p.m.(Rs 1,000 was increased w.e.f. 1.4.2017)
Dearness Allowance : Rs 3,000 p.m. (60% of which is for retirement benefits)
Commission : Rs 500 p.m.
Bonus : Rs 1,000 p.m.
Leave availed during service : 480 days
He was entitled to 30 days leave every year.
What will be the taxable leave salary assuming:
(a) He is a government employee.
(b) He is a non government employee.
Solution:
(a) He is a government employee.
Leave Salary received at the time of retirement Rs 5,00,000
Less : Exemption under section 10(10AA) Rs 5,00,000
Taxable Leave salary Nil
(b) He is a non-government employee
Leave Salary received at the time of retirement Rs 5,00,000
Less : Exempt under section 10(10AA) [See Note below] Rs 26,400
Taxable Leave Salary Rs 4,73,600
Exemption is least of the following:
1) Statutory Limit Rs 3,00,000
2) Leave encashment amount actually received Rs 5,00,000
3) 10 months’ salary
{(5000*8)+(4000*2)+(60% of 3,000 *10)*10}/10 Rs 66,000
4) Cash equivalent to leave to the credit of employee at time of retirement
((20*30)- 480)*(6600/30) Rs 26,400
(Republished with amendments on 28.06.2018)
Author Bio
Retired from a Public Sector Bank on 31.12.2018 and received PL Encashment of Rs.850000+ and that time I had paid applicable income tax for PL encashment above Rs.3.00 Lakhs. Now during our wage revision during the year 2021-22 I further received PL Enchasement of Rs.34359/- as arrears on 16.09.2022 based on revised salary as on date of retirement i.e., 31.12.2018. Now whether this amount is fully taxable for this assesment year i.e. the 3.00 lakh exemption limit is per each financial year or onetime facility for each employee during the service after retirement. I’ll be obliged if u kindly throw a light on it at your earliest. Regards.
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I am a private employee, I switched to other organisation on 14 Apr 2022 and I received 125000 as leave encashment from previous employer in may 2022 and I am still working with current employer. For me is this amount is taxable.
requesting sir please guide me on un earned leave on private affairs encashment on retirement is taxable or exempted how much please help me
Sir
I retired from Govt statutory organisation i.e. OIl Industry Development Board under Ministry of Petroleum & Natural Gas . My office has treated me as non-governmental employee and deducted TDS on my leave encashment on my earned leave under section 10 (10 AA) . The office has not deducted any TDS Earlier on employees who have been retired 2021. (Except in one case who has retired in 2021) Further, Other similar,statutory organisations viz. DDA and UGC passed by the Act of Parliament are not deducting TDS on their employees earned leave at the time of their retirement.
Accordingly it is requested that whether TDS is
Applicable on my leave encashment being an employee of a statutory organisation passed by Act of parliament 1974.
Thanks and regards
Ganesh Doval
9818245566
Sir, I retired from SBI and received leave encashment of Rs. 1362983/-. tax deducted in excess of Rs. 300000.00 of leave encashment. Whether Can I show it in sec. 10(10AA) in IT return and claim for fully exemption.
Hareshkumar
Read more at: https://taxguru.in/income-tax/leave-encashment-leave-salary-tax-treatment-sec-1010aa.html
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If any defence person retires from service after 20 years i.e. on expiry of initial engagement, at that time leave encashment amout is applicable for income tax or not for more than 300000 Rs.
Thanks
Yes, it will be fully exempted.
If you need help in tax saving
You can what’s up@ 9166387878
I was retired from Bank of baroda on 28-07-20 & I have received ₹881920 towards encashment of 240 days earned leave .Is it exempt from incometax?
सर , में दिनांक 31/12/2021 को मध्यांचल ग्रामीण बैंक से सेवा निवृत्त हुआ हूँ ।मुझे रु 1163000/ रु लीव एन केशमेंट के प्राप्त हुए हैं । मुझे यह राशि टैक्स फ्री रहेगी या नहीं। कृपया मार्गदर्शन दें।
Leave enchanted amt is fully exempt from the tax liability
Leave encashment exemption limit u/s. 10(10AA)(ii) of I T Act is to be fixed by gov. having regard to the limit applicable in this behalf to the employees of government. If notification is not done, whether exemption can be dis-allowed on the basis of notification of 2002 for amount over 3 lakh, in dis regarrd of act, which clearly states the linit for non gov employees to be having regard to limit applicable for gov employees?
में “राजस्थान राज्य विधुत उत्पादन निगम ” में 39 वर्ष कार्य करने के उपरांत सेवा निवृत हुआ हूं।
मुझे करीब 8 लाख रुपए 300 अनयूटीलाइज पी एल के पैसे मिले है।। सर क्या मुझे दियागया यह पैसा पूरा आयकर में छूट के योग्य है ।
अन्यथा कितना छूट योग्य है।।
कृपया उचित राय देने की मेजबानी करें
I retired from a Public Sector Bank on 31.12.2018. I had received PL Encashment of Rs.600000+ and I had paid applicable income tax for PL encashment above Rs.3.00 Lakhs.
Now during our wage settlement during the year 2020-21 I received arrears of PL Enchasement of Rs.135631/- based on revised salary as on date of retirement i.e., 31.12.2018. Now whether this amount is fully taxable or the 3.00 lakh exemption limit is per each financial year or onetime facility for each employee during the service after retirement.
After retirement leave encashment how much amount is exempt from tax
Maximum Rs 3 lacs for non govt employees. For government employees whole amount is exempt
In last AY2020-21 on retirement I have received leave encashment of Rs.800000 and availed exemption of Rs.300000. Again in this AY2021-22 I have received Rs.150000 as arrears of leave encashment. Whether it is eligible for exemption in this AY2021-22
Sir several whatsup messages regarding full exemption of it for leave encashment on superannuation to LIC and Bank employees is it correct any recent orders of CBDT
I recived on retirement from bank, get leave encashment 878940-.is it fully TAX-FREE under 10AA ? If any judgment available kindly provid me on email ID [email protected] Thanks
please let me know about new notification from CBDT for full examption of Income Tax on LEAVE ENCASHMENT on retirement of PSU employees
I have received Rs 835734 leave encashment how much tax paid on
if a employee worked for 150 days in a company while he is avail to take leave encashment or no because he has left the job and now he asking the leave encashment.
I was an employee. Of Telecom. Deptt. upto 30.09.2000 and then of BSNL from 01.10.2000 till retirement on superannuation. I received Rs. 650682 in total as leave encashment of which Rs.492112.50 as DoT/govt. Employee and rest amount as BSNL employee. Then how much exemption should I get.
Sir i amrt. Lic employee rt. On 31/10/2019.am i elligible for leave encashment tex relief above 300000.
sir,pl guide me almost same case as i was employed in DOT 1982.I retd.from BSNL 31.10.2019.the leave encashment recd.rs 795060/-which 296 days DOT period amounting rs.784459/-and 4 days BSNL period amounting rs.10601/-thus total rs.795060/ shown in itr-1 ay 2020-21 full exemption u/s 10(10AA) as per form-16 .now ITD/cpc serve notice for tax on leave encashment of rs.495060/-and demand tax rs.107380/-u/s-154.how can i get relief .my friends have no claim of tax for it in same case before.pl clarify by expert opinion as i can fight for it .tks.and regrds.
Govt. Of India undertaking bank employee is eligible for fully exemption on retirement leave encashment or not
I am a nationalized bank employee. Leave encashment under 10 as will be fully exampt like wise govt employees.
I retired from DAV College, Sadhaura which is a Government Aided Private College affiliated to Kurukshetra University. I received Leave Encashment of Rs10,18,972 after retirement. Is is taxable or fully exempted. Please through light keeping inview Rana vs ITAT case Delhi
I worked in Hindustan Petroleum Corpn. Ltd, and retired in January 2019. Regarding leave encashment Rs. 3 lakhs exempted and balance amount given after deducting 30 percent income tax. Now I came to know that I can claim full exemption of leave encashment. Pl. Clarify.
Sir ,read the queries. But couldn’t find the answers in your site.where are the answers posted ?
For Leave encashment at the time of retirement, Whether Nationalised Bank Employee is treated as Govt Employyes and can claim full exemption or it is restricted to Rs. 3 lacs only. Kindly clarify.
Sir, I retired fr SBI on June 2019 and form 26AS shows my salary income rs.1578184.15 whereas form 16 rs. 1278184.15 i.e. rs. 300000.00 of leave encashment is excess in Form26AS. Can I show it in sec. 10(10aa) in IT return.
Sir, As per sec 10(10AA) leave encashment is fully exempt for Govt employees. I retired from a nationalised bank on August 2020. In this case whether I have to remit tax over and above 3 Lacs and claim refund or else directly I can claim exemption without remitting tax. It will help lot of bank retirees if you clarify the basic rule. Thanks in advance
Sir
I am retired from govt. Bank in Dec 2019 and I received leave encashment Rs 850000/- Pl clarify how to calculate the tax and oblige.
Regards
Ashwani kumar
I AM RETIRE FROM SBI IN APRIL. I GOT LEAVE ENCASHMENT 960000. HOW MUCH I AM ELIGIBLE FOR EXEMPTION? FULL OR 3 LAC?
Sir, I retired from bank service on 31-07-2019, I rec’d leave encashment of Rs 908000/- please guide me how much amount tax free for me, I am not filed this year IT return. Thanks awaited your early reply in the mater
Sir, Please clarify whether State Bank of India comes under Government for the purpose of considering income tax eligibility for leave surrender on retirement, as SBI has been constituted under a special act in Parliament.
I had retired from PSU bank on 31st May 2019. Should I get exemption on full leave encashment amount. Pl guide. Amount is Rs. 8.80 lakhs.
, Sir,i retired from Nationalised bank on Feb.2019.on superannuation. Whether my leave encashment is fully exempted. Whether I being considered as govt. Employee u/s 10(10aa) n exempted fully . Pl reply.
Sir, i retired from Nationalised bank on April 2019.on superannuation. Whether my leave encashment is exempted. Whether i being considered as govt. Employee u/s 10(10aa) n exempted fully . Pl reply.
I retired on 31/01/2018 from a nationalized bank. Whether I will be considered as Govt. Servant for Leave en cashment .
I recived on retirement from government bank, get leave encashment 786000-.is it fully TAX-FREE under 10 a a ??
Is it correct that leave encashment beyond 300 days also at the time of retirement of a PSU employee is not taxable like in the case of Government employees from 1-4-2018. WhatsApp viral post is in circulation say that one chief manager of bank has taken up and CBDT has clarified. We do not find any such directions on the cbdt website. Can you please throw some light?
I retired from PS Bank on 30 Apr 2019. How much amount exempted on leave encashment. Plz guide.
thanks and regards
Rtd on 1st jan 2020. Got Rs 10.55 lac as Leave encasement. How much amount will be exempted under 10 10aa