By Nitesh Buddhadev
Leave encashment tax calculation: Accumulated depart can both be encashed throughout service or on the time of retirement or resignation. Any depart encashed throughout service is absolutely taxable and varieties a part of ‘income from Salary’. However, reduction below Section 89 might be claimed.
Leave encashment acquired on the time of retirement / resignation is absolutely exempt for Central or State Government worker.
Leave encashment acquired by Non-Government worker is exempt to the extent of decrease of the next:
- Amount notified by the Government- Rs 3 lakh
- Actual depart encashment quantity
- Average wage of final 10 months
- Salary per day x unutilised depart (contemplating most 30 days depart per 12 months) for yearly of accomplished service
Salary referred above consists of fundamental wage, dearness allowance and fee based mostly on mounted share of turnover secured by worker
For occasion, Gopal resigns from firm XYZ. His month-to-month wage is Rs. 1.5 lakh. He was entitled to 30 days depart per 12 months. His depart stability on the time of retirement is 20 leaves. His depart encashment of Rs. 1 lakh.
Hence the exempt depart encashment will probably be decrease of:
- Amount notified by the Government- Rs 3 lakh
- Actual depart encashment quantity – Rs. 1 lakh
- Average wage of final 10 months – Rs. 15 lakh (Rs. 1.5 lakh x 10 months)
- Salary per day x unutilised depart (contemplating most 30 days depart per 12 months) for yearly of accomplished service – Rs. 1.5 lakh / 30 days = Rs. 5,000 per day x 20 days = Rs. 1 lakh
Hence, whole depart encashment of Rs. 1 lakh could be exempt.
Now, Gopal joins firm ABC and serves there for 10 years earlier than retirement. His month-to-month wage is Rs. 2.4 lakh. He was entitled to 30 days depart per 12 months. His depart stability on the time of retirement is 100 leaves. His depart encashment of Rs. 8 lakh.
The exemption of Rs 3 lakh notified by the Government is mixture exemption throughout the lifetime of an worker. Hence the exempt depart encashment will probably be decrease of:
- Amount notified by the Government- Rs. 2 lakh (Rs. 3 lakh much less Rs. 1 lakh claimed exempt earlier)
- Actual depart encashment quantity – Rs. 8 lakh
- Average wage of final 10 months – Rs. 24 lakh (Rs. 2.4 lakh x 10 months)
- Salary per day x unutilised depart (contemplating most 30 days depart per 12 months) for yearly of accomplished service – Rs. 2.4 lakh / 30 days = Rs. 8,000 per day x 100 days = Rs. 8 lakh
Hence, quantity of depart encashment exempt could be Rs. 2 lakh and Rs. 6 lakh could be taxable.
In case if the employer credit greater than 30 days per 12 months, or the aim of depart encashment it ought to be restricted to 30 days per 12 months. For occasion, Anuradha served in firm LMN for 10 years. Company LMN credit 35 days per 12 months as depart. Leave utilised by Anuradha throughout the service interval is 60 days. Her month-to-month wage is Rs. 90,000. Leave encashment acquired is Rs. 8.7 lakh.
Since, Anuradha’s employer credit greater than 30 days per 12 months as depart, now we have to calculate the unutilised depart stability by proscribing to most 30 days per 12 months depart.
Leave credit | 30 days |
No of years of service | 10 years |
Total leaves credit score | 300 days |
Leaves utilised | 60 days |
Unutilised depart | 240 days |
The exempt depart encashment will probably be decrease of :
- Amount notified by the Government- Rs. 3 lakh
- Actual depart encashment quantity – Rs. 8.7 lakh
- Average wage of final 10 months – Rs. 9 lakh (Rs. 90,000 x 10 months)
- Salary per day x unutilised depart (contemplating most 30 days depart per 12 months) for yearly of accomplished service – Rs. 90,000 / 30 days = Rs. 3,000 per day x 240 days = Rs. 7.2 lakh
Hence, quantity of depart encashment exempt would Rs. 3 lakh and Rs. 5.7 lakh could be taxable.
Question:
I’ve acquired Rs. 5 lakh as depart encashment as part of the total and ultimate settlement from the employer of my deceased husband. What quantity could be taxable?
In the case of worker’s dying earlier than the depart encashment, their authorized heirs can obtain whole depart encashment on behalf of the deceased. No earnings tax will probably be charged on the quantity acquired by them.
(The writer is Chartered Accountant and founding father of Nimit Consultancy. Views expressed above are these of the writer and never essentially of financialexpress.com)
Source: www.financialexpress.com”