19022018 Leave Encashment Amount Do You Have To Pay Income Tax

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Leave Encashment Amount Do You Have ToPay Income Tax

Encashment of accumulated leave can be availed by an employee at the time ofretirement during the continuation of service or at the time of leaving the jobBusiness | NDTV Profit Team | Updated February 19 2018 0936 ISTSponsored

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Income tax Proceeds received towards leave encashment are taxable if received while in service

Leave encashment refers to an amount of money received in exchange for a period of leave not availed by an employee Encashmentof accumulated leave can be availed by an employee at the time of retirement during the continuation of service or at the time ofleaving the job The leave encashment policy varies from employer to employer Some employers pay for the unavailed leaves in thenext calendar year Some let the employees carry forward the balance leaves in a year to the next year And the employer pays for theunavailed leaves at the time of leaving the job Income tax treatment of the amount received towards leave encashment depends ontype of employment - private or government - and time of - in service or at the time of retirementHere are 10 things to know about income tax implications of leave encashment

1 Proceeds received towards leave encashment are taxable if received while in service2 Wh h l d i h i h i d f l h i f ll

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19022018 Leave Encashment Amount Do You Have To Pay Income Tax

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2 Whether you are employed in the government or private sector the amount received on account of leave encashment is fullytaxable in your hands if you leave a job due to resignation or termination

3 Under income tax laws the amount received towards leave encashment is treated as income from salary and taxed accordingly atthe respective tax slab rate applicable to the employee

4 For government (central and state) employees the amount received towards leave encashment at the time of retirement isexempt from tax

5 For non-government employees the amount exempted on retirement is least of the following a) actual leave encashment amountb) 10 months average salary (basic salary dearness allowance and commission based on fixed percentage of turnover achievedby the employee average salary drawn in past ten months immediately before retirement) c) Cash equivalent of unutilised earnedleaves (leave earned cannot exceed 30 days for each year of service rendered to the employer) d) Rs 3 lakh - the maximumamount specified by the government

6 For example suppose you actually earn Rs 5 lakh at retirement towards leave encashment Your average salary (basic + DA +commission) immediately preceding retirement was Rs 40000 a month or total Rs 4 lakh in 10 months In this case themaximum exemption you will get is Rs 3 lakh (statutory limit) So Rs 2 lakh (Rs 5 lakh - Rs 3 lakh) will be get added to yourincome and accordingly taxed

7 Leave encashment paid to the legal heirs of a deceased employee is not taxable8 Suppose an employee has received leave encashment in any one or more financial years and had previously availed any

exemption in respect of the same In such a case the limit of Rs 3 lakh will be reduced by the amount of exemption availedearlier

9 Employees can take exemption for the amount received by them even on retirement or resignation for encashment of theirleaves However this is to be taken care of that if any exemption has been availed on earlier occasion The amount of theexemption to be availed will be reduced by that amount said Sandeep Sehgal director of tax and regulatory at AshokMaheshwary amp Associates LLP

10 According to a ruling of the Bombay High Court leave encashment received on resignation too would be exempt from tax subjectto the specified limits

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