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Leave Salary Exemption - [Sec. 10(10AA)] - Salary Income - Income Tax

Leave Salary Exemption - [Sec. 10(10AA)]
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LEAVE SALARY EXEMPTION [Sec. 10(10AA)]

  • If Leave salary encashment is received by any employee while in employment then it is fully taxable in the hands of employee. While if leave encashment is received in case of retirement or superannuation or resignation, then exemption is available up to the following limits:
  1. In case of Central government or State government employee (excluding employees of a local authority or statutory corporation)  then leave salary encashment is fully exempt
  2. In case of any other employee, least of the following shall be exempt:
  • Actual amount received
  • 3,00,000
  • 10 months Average Salary1
  • Average Salary x leaves at the credit of an employee (leaves cannot exceed 30 days for every completed year of service

           Average Salary = Average of salary drawn in the last 10 months immediately preceding the date of retirement.

  • Salary includes basic pay, dearness allowance to the extent it forms part of retirement benefits and percentage wise fixed commission on turnover.
  • If leave encashment is received by an employee from more than one employer in the same previous year or in different previous years the aggregate maximum amount exempt from tax on account of leave salary cannot exceed 3,00,000.
  • If the employee had received leave encashment in any one or more earlier PY and had availed of the exemption in respect of such amount, then the limit specified above shall be reduced by the amount of exemption availed earlier

 

 
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