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
Is HRA included in gross pay while calculating leave encashment at the time of retirement ?
Thanks for the clarification wrt Average Salary components.
I retired from Food corporation of india public sector on 1.4.2019 and received leave Encashment of Rs 3,20,000/-.How much amount will be tax free. Tanks
Sir,
I retired from LIC on Jan-2019, and received 9.01 Lacs as leave encashment.
How much amount of leave encashment is exempted from income tax under section 10 (AA).Please guide me.
Regards
A K Adhikari
I left a public limited company after service of 25 plus years. I took some leave around 20 days before leaving on 31st May 2019 .Company has deducted my salary for the leaves after granting me 7 days casual leave and is telling I am not entitled for any EL for serving this 5 months. Are they right ? Else what should I do?
I retired from one of the nationalised banks on 31.05.2018. I got leave encashment of Rs.774000/- for 240 days. Out of how much is taxable and how much is not taxable.
I am bank employee.retired on 31/12/2018.I received rs.683000-as leave encashment for 217 days. How much amt. is tax exempted.
Retired on 31/03/ 2019 from Bank. Received 8 months leave encashment . Is whole amount received is exempt from IT or Rs. 3 lac
Reply Send on mail
Sir, I join in 8.1.1974 and retired on 31.1.2019. My date of birth is 5.1.1957. Now I am retired. After rendered 45 years service leave encashment and gratuity is not paid by the institution because 45 years of service.Here retirement age is 62 years. Please advice me. Thank you
i want to encash my leave salary in this month.
Total balace leave is 68. & i want to encash only 30 Leav.
The Q.. is whether the amount is taxable & Pls give me the rules /formula for calculating encashment of leave .With proof of HR policy or govt rules.
Sir, I am central Govt.employee . Can Income Tax will be levied on leave encashment taken for purpose of LTC ?
Sir,
one employee continuous Earned Leave from June 2018 even in July, 2018 also. His increment date is 1st July, 2018. But he has extended his leave upto 25-08-2018. in the meanwhile he expired on 21.8.18.
As he was not drawn increment due to continuous leave even on 1st July, 2018, kindly clarify how to calculate his encashment of leave salary on his death whether on prior to July Basic Pay or after grant of increment as usual if he alive.
SIR MY LAST BASIC AT THE TIME OF RETIREMENT IS 105900/- WHAT IS MY
LEAVEINCASHMENT AMOUNT
THANKS
Hi Sir
I am working in one of the pvt co., i want to know the leave policy & different type of policy & leave encashment rules .can you guide me.
Sir im working in Ap transco as an AE….i want to encash my 30 days leave….. can i do tax saving?
Hi Sir,
I have received 159000 Rs. as leave encashment from my past Pvt Ltd.company in Feb 2018. I have worked in that company for 4 years correctly upto Feb 2018. As per my company rules, only 30 days max. leaves for encashment. My basic salary is 43000 per month from the last 10 months (feb 2018-10 months). That company showing tax exemption only 43000 and remain 116000 as taxable in Form 16. So can you please calculate my correct taxable amt from my leave encashment for IT returns. Waiting for your reply.
Thanks
Raj
M: 08885848630
I AM WORKING IN ONE OF THE NATIONALISED BANK. I AM RETIRING ON 31/07/2018 (NORMAL RETIREMENT AS I AM COMPLETING 60 YRS ON 31/07/2018. MY DATE OF JOINING THE BANK IS 13/05/1977 AND EARNED (PL) LEAVE BALANCE IS 206 DAYS AS ON TODAY. I AVAILED PL 5 DAYS AND FULL PAY SICK LEAVE OF 2 DAYS JUN 2018. THEN PL GUIDE ME HOW TO CALCULATE TOTAL NO. OF DAYS FOR PL ENCASHMENT AND WHAT WILL AMOUNT I WILL GET FOR PL ENCASHMENT. HOW MUCH I TAX WILL BE DEBITED.
PL GUIDE
sir kindly read it as that tax liability has not shown any decrease.
sir retired from pnb. I have to request to kindly inform under which head rupees 3 lacs to be shown for exemption under leave encashment. I have filled in the form by adding the entire income as per 26 AS in my return and shown below rupees 3 lacs under section 10aa but tax liability has now decreased. Kindly guide under which coloumn rupees 3 lacs to be fillied in to take benefit of rupees 3 lacz
Please tell me is any amount of salary for last month excluded from salary for leave encashment reg bank retired
If any amount exclude from last month salary of employee
Mean part of the salary in encashment or the calculation based on average salary or last month salary for 240 days
For bank employee kindly advice me because i retd from uco bank in may 31 2017 and bank procedure for 240 days
Encasment bank excluding cca from my salary and up
To what amount taxation liability
I had been retired from the Govt. Service after attaining the age of 58 years on 30.8.2016. I had received the payment of Leave encashment on the last pay drawn. since , the DA was enhanced after my retirement. Can I entitled for revised leve encashment payment on enhanced DA or otherwise.
Sir,
My uncle retired for S.B.I. & he received leave Encashment salary of Rs.5,20,560/-.Will you Please tell me this income is fully exempt income?
I retired from SBI on 28/02/17. Leave encashment amount is not paid to me till 31/03/17. It will be paid in 2017-18. The statutory Auditor visited the branch in April 17 and insisting for TDS on the proposed leave encashment amount and changing my from 16 for 2016-17 already issued to me without showing payment of leave encashment and corresponding TDS., Please advise the correct procedure.
Sir,
I was absorbed from a Central Govt Autonomous Body to a Central Government subordinate office both under same Department. While releiving from autonomous body my 124 EL were encashed and income tax was deducted. It was also stated that the 124 number of leave shall be deducted from maximum 300 EL that can be encashed at the time of retirement. In such a situation am I supposed to pay income tax on 124 ELs encahsed as this is being deducted from the maximum 300 ELs at the time of retirement, where income tax is not deducted at the time of retirement. pls clarify. thanks.
leave encahment availed earlier can it be added back at the time of retirement if leaves fall short of 300 days
will you please guide an employee who has less than 300 E L but has availed leave encashment on L T C ,can these leaves on encashment be added back at the time of retirement
Hello Sir,
I am working with a private MNC. I recently changed my job after working 6 yrs with my previous company. At time of resignation i had some EL’s which are encashed.
I want to know if the whole amount encashed for the EL’s will be considered taxable OR some part of it will be tax exempted ? My previous company has considered entire amount as taxable saying that only at time of retirement the amount becomes exempted from tax. Can you please help ?
I AM WORKING IN PRIVATE CO SINCE 7 YEARS. NOW THEY ARE SAYING ABOUT LEAVE ENCASEMENT IS ONLY ONE MONTH SALARY AS PER COMPANY POLICY, ARE THEY RIGHT? PL ADVICE.
Dear sir
I was working with a private company and left job after serving for 2 yrs and 10 months. When i left the job, i had 26 earned leave in my account. I asked for EL encashment but the company refused encashment saying it is done for minimum 5yr old employees only. Pls advise whether it was right or legally i can claim my leave encashment
Rgds
Gaurav aggarwal
In the equation mentioned in note 1 above, why did you divide by 30? That is the number of days in a month- which rule or law suggests that, I am curious to know
i want to show my leave encashment in ITR ,where & which column it has to be shown in ITR &how?
I have retd as Nationalised Banks employee on March 2014. My Leave amount was Rs 6,26000 and in the IT returnor FY 2014-15, I have availed relief of Rs 3 Lakh and paid Tax for the remaining 3.26 Lakh. This is apart from other tax Liabilities. In 2015-16, I have received an arrears of Rs 1.4 Lakh towards Leave encashment due to revision of wage in banking industry.
IS THAT RS 1.4 LAKH TAXABLE ?
I retired in osu black I got leave encroachment of 659000 calculate tax
I wanted to know whether the provision of leave encashment on retirement for central/State Govt. is applicable to any public sector undertaking like insurance co/nationalised banks employess also ?
Sir,
He was working public sector insurance 30 years completed.He was un expectely died august 2015 his accumulated leaves 238.8/11.He was received salary basic Rs.40460,DA Rs.42907 and FPA Rs.248.5.Kindly advice deceased employee leave encashment tax liablity.
In our employee died (Deceased)but he got Leave encashment Rs.686589/- how much income tax?Kindly advice me.
Sir,
i have some problem to calculate EL of our employee (died) and detail of his mentioned below:-
Basic Salary 20419/-
No. of Service of year 20 yrs with full attendance.
plz reply me urgently because our HR dept shows his 235.5 EL during his 20 yrs service and he has never took his EL and every year his EL has been added continuously/forwarded to next year.
I TOOK VOULANTRY RETIREMENT FROM PUBLIC SECTOR IN SEPT 2015.I RECIEVED Rs 628000/ LACS AS LEAVE ENCASHMENT. PLEASE ADVISE HOW MUCH AMOUNT IS EXEMPTED UNDER INCOME TAX ACT.
M.K. Thakur
1.12.2015 At 13.00 PM
Sir,
I retired from the statutory autonomous State Govt. under taking which regulate under the Seeds Act, 1966. Kindly, intimate to me that my Leave Encashmente is taxable ?
Reply
22/09/1997 to 31/12/1997 uel on mc not received
I RETIRED FROM BANK’S (STATE BANK OF INDIA) SERVICE ON 31/03/2013 (VOLUNTARY RETIREMENT) AFTER SERVING FROM 26/06/1974 THAT IS 38 YEARS AND 9 MONTHS. I WAS GIVEN A LEAVE ENCASHMENT FOR 55 DAYS ONLY ALTHOUGH ACCORDING TO HRMS IT WAS MORE THAN MORE THAN 240 DAYS. THE CALCULATION SHEET WAS NOT GIVEN TO ME. PLEASE ADVISE ME THE CALCULATION.
Can any employee get EL if he/ she is not complete 1 year of services.
sir, i have taken VRS from govt bank this year and i have received leave encashment of Rs. 6,57,377/- what will be the tax applied to this encashment.
Sir, kindly confirm if an employer can refuse to pay the leave encashment
Sir,
I have taken this paragraph from text, given above which needs technical support with SECTION/ CIRCULARE before I claim with department
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.
Res sir,I m govt highschl teacher in karnataka,I was taken 27 days non payment leave on medical base in sept2014,may it effects on my seniority n increment.shall my seniority goes 1month late.plz advice me.
Respected Sir, I am working as Senior Assistant in Osmania Medical College,Hyderabad Telangana , in Medical and Health Department.
i am needs to have an clarification in the Lights of the Government orders , That can a employee (Doctor) is eligible for leave encashment after Resignation from Govt Services
1. Minimum / Maximum How many years of services are required for sanction .
Sir
May salary is 20000/- CTC per month & deduct PF & admin charges 2600/- & both share & rest of balance in hand salary,
on EL encasement which amount will be applicable Rs 20000/- or 17400/-
Please provide me nay link related to government rules.
Thanks
I am working in himachal pradesh state lectricity board ltd, a state govt undertaking created under company act 1956 and my friend retired from job on superannuation and received leave encashment rs. 600000 is it taxable or exempt