Home > Income Tax > Salary > Leave salary exemption – Section 10(10AA)

Leave salary exemption – Section 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 upto the following limits.

In case of Central government or State government employee(excluding employees of a local authority or statutory corporation) – Fully Exempt

In case of any other employee –

Least of the following is exempt:-

  • Actual amount received
  • 3,00,000
  • 10 months average salary
  • Average salary x leaves at the credit of an employee (leaves cannot exceed 30 days for every completed year of service, fraction of a year is to be ignored)

Salary includes basic pay, dearness allowance(if it forms part of the retirement benefits) and percentage wise fixed commission on turnover

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

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 encashment cannot exceed Rs. 3,00,000.

Leave salary paid to the legal heirs of the assessee, who dies during the employment will not be taxable.

Also Read: Section 43B – Leave Encashment is allowed as expense to employer when paid before due date.

About Rohit Pithisaria

Rohit Pithisaria is a Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He is actively writing from very beginning of his professional career and is author of various tax articles and blogs.

Leave a Reply

Your email address will not be published. Required fields are marked *

GST & Income Tax Fortnightly Magazine for CA/Tax Practitioners

Remain updated with latest laws 

Free E-book on New GST Return System

 
Subscribe Now
close-link
Online Software For
CA/Tax Professionals to Manage GST & Income Tax Practice
Features:-
Chrome extension for easy login in GST & Income Tax portals.
Get status of all GST Returns of a client in a click.
Create Return task for all clients in one click.
Authorized Connection with GST Portal - Mark the return as filed only when actually filed on portal.
Multiple users.
And many more.........
Much better than excel sheets
Launching Soon. Enter your email address to be the first to know.
Yes, I am Interested
No Thanks!