Earned leave means the leave accrued to the employee in proportion of the work done by him. This varies from employer to employer. For example in government sector, the earned leave is 2.5 days for every month worked. This 2.5 days is granted with a view to provide him rest to enable him to recover from the stress and strain endured by him during the course of his work. This can be accumulated and either taken in the subsequent months or encashed as per the rules extant in force. If leave standing to the employee’s credit is not taken within a year, as per the service rules, it may lapse or it may be encashed or it may be accumulated. The employee can avail the accumulated leave during his service tenure or it can be encashed at the time of retirement or leaving the job. Encashment of leave by surrendering leave standing to one’s credit is known as leave salary.
Leave Salary encashment Exemption Calculation
The taxation of Leave salary for various categories of employees is shown here under:
|
Status of Employee |
Nature of Leave Encashment |
|
| Government/ Non-Government employee | Leave encashment during Continuity of employment | It is chargeable to tax. However relief can be taken under section 89 |
| Government employee | Leave encashment at the time of retirement / leaving job | It is fully exempt from tax under section 10(10AA)(i) |
| Non-Government employee | Leave encashment at the time of retirement / leaving job | It is fully or partially exempt from tax in some cases under section 10(10AA)(ii) |
In Simple words from the above tabloid summary we can conclude that Leave Salary is chargeable to tax only in two cases first accumulated leave being enchased by any class of employee- Govt. or Non Govt. during the continuation of employment whereof it is fully chargeable to tax.
Second being accumulated leaves enchased by a non govt. employee on his/ her retirement whereof the complicated part of calculation of exempted leave salary comes into picture which can be calculated as LEAST of the following:
a. Cash equivalent of the leave salary in respect of the period of earned leave standing to the credit of employee at the time to retirement/superannuation (earned leave entitlements cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired); (See Note- 1)
b. 10 months’ ‘average salary’; (See Note- 2)
c. Rs. 3 lakh (applicable from 01.04.1998);
d. The amount of leave encashment actually received at the time of retirement.
Note- 1
How to find out leave standing to the credit of an employee at the time of retirement or leaving the job
Step (a) – Find out duration of services in number of years (ignore any fraction of year).
Step (b) – Find out rate of earned leave entitlement from the service rules – how many days leave is credited at the rendered for each year of services (earned leave entitlement can not exceed 30 days for every year of actual services rendered for the employer from whose services he has retired).
For instance, if earned leave is credited at the rate of 45 days leave for each year of service, for step (b) calculation shall be made at the rate of 30 days leave for each year of service. If, however, earned leave is credited at the rate of 23 days leave for each year of service, for step (b) calculation shall be made at the rate of 23 days leave for each year of service.
Step (c) – Find out earned leave actually taken or enchased (in number of days) during the service time, the computation shall be made as follows:-
Step (a) × Step (b) minus Step (c) ÷ 30
Note- 2
How to find out Average monthly salary?
Salary, for this purpose, means basic salary and includes dearness Allowance if terms of employment so provide. It also includes commission based upon fixed percentage of turnover achieved by an employee, (if any). ‘Average Salary’ for the aforesaid purpose is to be calculated on the basis of average salary drawn during the period of 10 months ending on the date of retirement.
Other relevant points for Leave Salary encashment Exemption
- Here, Average Salary is to be calculated on the basis of average salary drawn during the period of 10 months immediately preceding the retirement or superannuation. Salary means last drawn salary and includes basic salary + Dearness Allowance (if terms of employment so provide) + Commission based on a fixed % of turnover.
- Where the cash equivalent of unutilised earned leave is received by an employee from two or more employers in the same year, or different years, the maximum amount exempt from tax shall not exceed the amount specified by the Government i.e., Rs. 3,00,000/-.
- Salary paid to legal heirs of the deceased employee in respect of privilege leave standing to the credit of such employee at the time of his/her death is not taxable as salary.
- Sum equivalent of leave salary received by the family of a government servant who died in harness, is not taxable in the hands of the recipients.
- In case of Non-Government employee, Leave Salary received on Resignation or Retrenchment is taxable. Of course, relief u/s. 89 r.w.rule 21A would be admissible. However, Leave Salary received on Voluntary Retirement or Compulsory Retirement is exempt u/s.10(10AA) (ii) to the extent specified therein. The scope of said section is extended to Leave encashment at the time of retirement whether such retirement is on superannuation or otherwise. The word “otherwise” covers the case of Voluntary Retirement from service as held by Madras High Court in CIT vs. R V Shahney (159 ITR 160).
Download- Leave Salary encashment calculator
(Republished with amendments)
Author Bio
Dear sir, I wish to inform that sir i retired on superannuation in May,2015 from Bank of India and got Rs.8 lacs approx.on account of 240 days leave encashmentafter completion of 37 years of service in the bank.I request you to kindly advise me position of exemption of my encashment. Thanks and regards,
J.P.GUPTA
382,Solanipuram,Roorkee Distt.Haridwar ( UttraNCHAL )
MOBILE NO.09958495940
Retired from pnbank.how much exemption i can claim out of 650000 paid as leave encashment.
i resign job jun2015 i want to clime pf in form 15g option assessment year what pls help me
Sir,
I am working in a private Company and will be superannuating (60 years) in a couple of months. I have been working in the present Company for the last 10.5 yrs and there are 124 days Earned Leave to my credit. Am I entitled for tax exemption on these leave encashment at the time of my retirement? Kindly reply to my mail. Regards KM thankachan
I retired from UCO Bank (govt of India undertaking) on 31st oct2014, and got leave encashment of Rs4.90lacs,I want to know is full amount of leave encshment is exempted from Income Tax .
second if taxable , will full amount be added in income and applicable rate may be 20% or 30% will be charged or only 10% rate of IT is applicable irrespective of any income?
I am filing ITR-2 for AY 2015-2016 (FY 2014-2015), I have received a Leave Encashment when I resign my previous job in above mention period. I came to know that Leave Encashment at the time of leaving the job is tax exempted as per sec 10(10AA)(ii). But I could not find the correct column in ITR-2. Please assist me where I can mention 10(10AA)(ii) amount in ITR-2.
dear sir,
I RETIRED FROM SBI IN THE MONTH OF MARCH 2015.I GOT LEAVE ENCASHMENT
OF RS.650000/.BANK DEDUCT TAX.KINDLY INFORM ME HOW MUCH AMOUNT FROM ABOVE IS TAXABLE
hi..
I have joined state govt (autonomous) hospital from 15th June. Previously I was working in central govt (autonomous) hospital till 14th June . I have 90 days EL in my previous job. Can this be transferred from central to state govt hospital? when I enquired in HR section, they denied to transfer the EL. I wanted to know the Govt rules which I can show and ask for the transfer.
Suma
Dear Sir,
We Open a New Pvt Ltd Company on 1 April 2014, is it applicable to Earned Leave to employees. If Yes then how much earned leave. please help me
I am working in a govt. firm as contractual employee.I was on leave from 26th feb,2015 to 1st may,2015 as I was suffering from tuberculosis.2nd & 3rd, may were non-working day and 4th was Gazetted holiday.I rejoined my duty on 5th may,2015.by my leave duration in the month of may was calculated till 4th,may 2015 and salary was credited from 5th may to 31st may.
Hi,
In my company a employee is dead on feb-2015 off duty, further our director’s want to pay his family of rs.3.20 lac as an humanity & also advance salary .
In this certain condition is TDS is applicable on his salary ? kindly guide on this.
Thanks & Regards
Pramod Bhandari.
I resigned from a private college and switched to a government college. From my previous employer, I have received 4.25 lac as gratuity (10.5 yrs. Service) and leave encashment of EL 121 days that comes around 2.7lac. I am asking to clarify whether these two are taxable or not?
I retired from UCO BANK and I received 5 lacs towards leave encashment kindly clarify whether the total amount of 5 lacs is exempted from tax or part thereof
sir / mam need ur help urgntly
my question is
1.The amount of leave in enchashment is rupees 5 lakhs .What shall be amount of tax and upto amout shall be exampted?????rply urgent please
I retired from state bank of india and I received 5 lacs towards leave encashment
kindly clarify whether the total amount of 5 lacs is exempted from tax or part thereof
will you please give me a solution for the problem relating to my leave surrender encashment. i am the person relieved from one primary co-operative bank to another primary co-operative bank through kerala co-operative service examination board recruitement .but till now i didn’t get leave surrender from previous bank.i have EL220 days in my previous primary bank.is there any rule for the same mentioned above relating to my problem.may i get any way under any rule or govt.orders relate to co-operative bank to get my surrender of leave encashment.awaiting for your favourable responce
For an employee in a PSB if his his salary is reduced by two increments for last 2 days on account of disciplinary action, how much should it affect the leave encashment on retirement. Should the last salary shall be the average salary drawn in the last month or the last day on account of reduction. Pl clarify with reference of guidelines.
Sir,
I have served 10 years in state govt. then came on lean to central govt.autonomous establishment and subsequently absorb , now it become around 15 years , I have got transferred GPF amount to my new establishment , i have EL 219 days in my previous establishment, Now can i transfer the said live in present establishment or case the amount either me or present establishment or something other, Pl. advise me in detail.
Mrinal
mrinalck@gmail.com
will you please give me a solution for the problem relating to my leave surrender encashment. i am the person relieved from primary co operative bank to district co-op bank through kerala psc recruitment(category recruitment from primary bank employees).but till now i didnt get leave surrender from primary bank. is there any rule for the same mentioned above, relating to my problem.may i get it any way, under any rule relate to co-op bank to get my surrender of leave encashment. awaiting for your favorable responce.
I retd from a nationalized bank on 31-5-2014.
I recd Rs 630000 as leave encashment.
Whether entire amt is tax free or only Rs 300000 is tax free.
Does a govt. bank employee comes under central govt employee.
please explain ASAP
Hi,
I am working in a Non-Gov organization (Medical college) in Karnataka Bangalore and decided to resign from this organization. I have 55 Unused ELs and when I checked with HR they are saying that Management decided for no encashment of ELs. Is it Mandatory to provide encashing of ELs at the time of releaving from the duty.
1. Can Management can decide on this?
2. Is Leave encashment is Mandatory?
3 Is any written rule to show management regarding this.
Thanks in advance
the calculation of 10 months average salary as refected in the column E 30 is not clearly explained, exemption amount would have been different if the last salary drwan is higher that the 10 months avg salary. pl see section 10 (10AA)(ii) which says “any payment of the nature referred to in sub-clause (i) received by an employee, other than an epmloyee of the central govt or state govt., in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months calculated on the basis of the average salary drawn by the epmloyee during the period of ten months immediatly preceding his retirement whether on superannuation or otherwise subject to such limit as the central govt. may, by notification in the official gazette, specify in this behalf having regard to the limit applicable in this behalf to the employeees of that govt.
I retd from a nationalized bank on 31-5-2014.
I recd Rs 630000 as leave encashment.
Whether entire amt is tax free or only Rs 300000 is tax free.
Does a govt. bank employee comes under central govt employee.
regards
It imay be clarified whether the encashment of HPL at the time of retirement (within limit of 300 days for EL & HPLtaken together) is taxable or exempt from tax as Section 10(10AA) of IT act inter alia provides as follows
any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement [whether] on superannuation or otherwise ;
In view of this kindly specify provision under which ‘cash equivalent of the leave salary in respect of the period of Half pay leave at his credit ( within limit of 300 days for EL & HPLtaken together) at the time of his retirement [whether] on superannuation or otherwise; is exempt from tax.;
I belong to Non-govt category.
I have resigned from my company and have joined a new company.
My previous organization has provided 17384/- as leave encashment, however, they haven’t provided any tax exemption on it.
Can i claim that exemption in my new company, where i am declaring my previous income?
Can i declare this amount for exemption under u/s 10 in my new company?
please reply soon!
I retired from bank of maharashtra on 28.02.2014 and got leave encashment of Rs. 5041000/-after 1.4.2014. Now I have to file I tax returns for the year 22014-15. Kindly inform me how much amount from above is taxable?
I RETIRED STATE BANK OF INDIA 31.07.2014.LEAVENCASHMENT AOUNT I TAX APPLIED BY AOUNT OVER 3 LAKHS.@10%.PLEASE ACKNOWLEDGE ME WHAT WILL BE DONE IN I TAX RETD SUBMISSION.
Question:
A University of Delhi (Central University) Professor retires on 28/2/2015. He has 300 days of accumulated earned leave which can be encashed. Is the leave encashment taxable?
(Apparently there is a UGC circular which says that leave encashment is not subject to income tax for Central University employees who are retiring.)
Grateful if you could kindly clarify.
sir,
I have one doubt. Encashment leave salary seperate shows in basic,da,hra in record. but at the time of hra exemption calculation already taken 12months hra. if encashment leave salary hra amount to be taken or not in calculation of hra exemption. please guide me.
Whether Govt employee includes only state /Central govt employees or state owned PSUs ,Public sector Ins Cos?
Dear sir,
How to calculate privilege leave encashment . How long time taken to credit the amount in my
Bank account.
I am doing service in Maharashtra state road transport corp.it is semi goverment so can i avail fully exemption on leave after retirement? plz tell me
mera retirement 30.4.2015 ko he kya mujhe 315 P.L ka encashment ho saketa he
Whether Government employee means only State/Central govt. (or) state owned PSUs
My salary includesBASIC+VDA+FDA+EDUCATIONallow+HRA. which component is taken for calculation of privilege leave encashment
my salary includes basic+Vda+Fda+HRA+Personal pay+Education allowance please let me know what are the components will be taken into account of calculation of privelage leave encashment pl post the answer to my mail id
Is there any condition of minimum service . like 1 year or soon. I have changed by company with in 6 months and my employer is not giving me LEAVE encashment exemption, stating that I have leave within one year.
Request you to please advice me that whether there is any rule for the min service period.
Thanks,
Avinash
Whether Govt employee includes only state /Central govt employees or state owned PSUs ,Public sector Ins Cos?
Whether Govt employee includes only state /Central govt employees or state owned PSUs ,Public sector Ins Cos? kindly reply
who comes under category of government employee to avail exemption of tax.whether state/central/psu
I AM A EMPLOYEE OF PVT . CO.I HAVE REGINED & RECEIVED RS.149500 AS LEAVE ENCASHMENT & 50000/- SALARY ,PL TEL ME LEAVE ENCASHMENT RS. 149500 IS TAXABLE?
PL INFORM ME
Sir,
I retired Govt. Servent Dt.- 31/08/2014 I got Rs.- 5,25,800/- encashment of leave
Please Specify whether total amount is taxable or how much amount is taxable ?
I worked on 3 year tenure jon in Central Govt. After completion of my 3 Yeat tenure i got leave encashment for 45 days around 1 Lakh. Is it taxable or. exmpted fully or partialy. Kkindly explain
i m a bank employee & i have a voluntary retirement . i got rs. 495000/- recd . on account of leave incashment , i m eligible for deduction rs. 300000/-
please confirm
thanks
Ganesh Gupta
Whether Govt employee includes only state /Central govt employees or state owned PSUs ,Public sector Ins Cos?
Please clarify the word GOVERNMENT as well as Non GOVERNMENT.
Dear Sir,
My question is whether Govt. servants include employees of PSU where Govt. Of India is a sole owner and having no public shareholding???>?
Pl. reply.
Hi,
I am working with private Ltd. Company.
Please to give me the suggestion for following points:
1) Which type of leave can be taken at the time of resigned for full and final settlement ?
2) Is there any upper limit of No. of leave for calculation of full and final settlement ?
As per the terminology given
” Salary means last drawn salary and includes basic salary + Dearness Allowance (if terms of employment so provide) + Commission based on a fixed % of turnover”
It means if the assessee receives payment of leave encashment calculated on full salary which may include any allowance, then entire amount is exempted (subject to other three conditions) since “the terms of employment so provide”.
Thanks for the clarification wrt Avarage Salary components.
However, most of the companies in Private Sector do not have Dearness Allowance components. Instead other various allowance with different names. Such employees are deprived off from the benefit of D.A component while computing Leave Encashment or Gratuity.
Does it have some remedy ?
Chandrakant