Tax liability on Leave Encashment

Human Resources » Compensation & Benefits

	Message From: jothiramani shreya	Total Posts: 9	Join Date: 11/02/2009
Rank: Beginner	Post Date: 11/05/2011 12:34:09	Points: 45	Location: India

hi guys / gals,

appreciate clarification on following:

"Amount of Leave Encashment" "IS NOT TAXABLE" at the time of cessation of services due to resignation, retirement & other reasons.

Appreciate the right confirmation along with reference or clause ....

	Message From: srini	Total Posts: 120	Join Date: 11/02/2009
Rank: Leader	Post Date: 11/05/2011 12:35:05	Points: 600	Location: India

Shreya,

Section 17(1) (va) of IT Act 1961says that any payment received by an employee in respect of any period of leave not availed of by him is treated as salary. Therefore, it has tax liability.

srini

	Message From: savi989	Total Posts: 70	Join Date: 11/02/2009
Rank: Manager	Post Date: 16/05/2011 05:29:32	Points: 350	Location: India

Dear Shreya,

Leave Encashment in case of separation is non taxable upto the limit of Rs 2,50000/- as per income tax rule.

but

Leave Encasment in case of active employee is treated as salary & income tax as per rule & slab is applicable.

hopt this clarifies your doubt.

Regards,Savita

	Message From: rakhip	Total Posts: 15	Join Date: 11/02/2009
Rank: Executive	Post Date: 22/05/2011 02:22:36	Points: 75	Location: India

Dear srini,

I wanted to know that can a employee who has not availed there PL in a calender year can encash it at the end of the month? and if they can encash it on what basis it can be calculated? and why?

The management are not ready to give the employees the Pl encashment on the basis of BASIC SAL + HRA as we were doing in my previous company.i am really confused.

If you can pls help me in this it would be of gr8 help. I urgently req this as we are forming company policy.

Thanks

Rakhi

	Message From: srini	Total Posts: 120	Join Date: 11/02/2009
Rank: Leader	Post Date: 22/05/2011 02:23:52	Points: 600	Location: India

Dear Rakhi,

There is no provision for encashment of PL in the Factories Act.

However, Sec 30 of the AP Shops & Establishments Act 1988 says that an employee who works for 240 days or more he is entiltled for 15 days PL. PL can be accumulated to the extent of 60 PL. An employee is entitled for encashment of Leave with Wages for a period of 8 days in every year and to be settled within a week of receipt of the application for such encashment from the employee.

Wage definition for encashment of PL will be as per Sec2(23) of the AP Shops & Establishment Act, 1988. This is AP State legislation.

Pl. refer your State Legislations for further clarifications.

Normally, for the encashment of PL every Orgn. will have their own policy.

In our Orgn. we allow our employees to accumulate PL to the extent of 120 and maximum of 240. In our Orgn. PL encashment is based on Basic Pay.

I hope these inputs may help u in framing your policies.

srini

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