Many forms of paid leave, including yearly or earned leave, sick leave, and casual leave, are frequently available to salaried workers. Employer policies may let you carry forward leaves indefinitely, and some leaves may be carried over to the following year. You may get money from these leaves by leave encashment. Coming to your query, how much leave encashment is tax free? The maximum tax exemption amount for leave encashment is Rs 25,00,000.
The tax exemption on leave encashment in India depends on whether the individual is a government or non-government employee, as per Section 10 (10AA) of the Income Tax Act, 1961.
Leave encashment received at the time of retirement or resignation is completely exempt from tax. This applies to employees of central and state governments, including public sector undertakings (PSUs).
For non-government employees, leave encashment is partially exempt. The exemption is calculated based on the least of the following four amounts:
Cash equivalent of leave calculated as:
Unused leave (in days) × Average salary per day and unused leave is capped at a maximum of 30 days per year of service.
The exemption, \"average salary\", is based on the last 10 months\' basic pay and dearness allowance before retirement or resignation.
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Is Leave Encashment Tax Free?
For government employees (Central or State government employees), the entire amount received as leave encashment at the time of retirement is fully exempt from income tax. For non-government (private sector) employees, leave encashment is taxable under the head "Income from Salary". However, certain exemptions are available under Section 10(10AA)(ii) when the leave encashment is received at the time of retirement or superannuation or otherwise leaving the job. Coming to how much leave encashment is tax free, the exemption amount is the least of the following:- Actual Leave Encashment Received: The actual amount received as leave encashment.
- 10 Months' Average Salary: 10 months' average salary (salary includes basic salary and dearness allowance (DA), if terms of employment so provide, and commission based on a fixed percentage of turnover achieved by the employee).
- Cash Equivalent of Leave: The amount equivalent to the leave balance (maximum 30 days for every completed year of service).
- Statutory Limit: ₹3,00,000 (This limit is fixed by the government and is applicable as of the current financial year).
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How Much Leave Encashment is Tax Free?
Arvind
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2024-06-04T10:37:12+00:00 2024-06-04T10:56:52+00:00Comment
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