Go away Encashment: Tax Computation of Quantity Exempted

Whereas an worker is in service, he’s allowed numerous sorts of leaves like Medical Go away, Gazetted Holidays, Informal Leaves and so on. There are some sorts of leaves which will be carried ahead to the following yr whereas there are some leaves which can’t be carried ahead to the following yr.

In case an worker doesn’t avail all of the leaves which had been allowed to him, he may additionally encash these leaves and earns wage for the no. of the times which had been allowed to be taken as leaves however weren’t availed as go away. The coverage of no. of leaves allowed to be taken and the go away encashment is determined by the employer for whom you’re working and totally different employers have totally different insurance policies for go away encashment.

Tax on Go away Encashment

In case you haven’t taken leaves and have opted for encashing these leaves, your employer can be paying you some quantity as go away encashment. The quantity so acquired on account of encashing the leaves not availed can be liable to tax below head “Earnings from Wage”.

Nonetheless, on the time of filing of income tax return, sure exemptions can be allowed from the quantity acquired as go away encashment and the stability quantity can be taxable as per the Income Tax Slab Rates in power for that yr. The style of computation can be as below:-

Quantity acquired as Go away Encashment  xxx
(Much less) Quantity exempted (xxx)
Quantity chargeable to tax as per Earnings Tax Slab Charges  xxx

Computation of Amt Exempted from Go away Encashment

Encashment of go away throughout tenure of service: Go away encashment to an worker, whereas he continues to be in service with the identical employer is totally taxable and no exemption is allowed.

Encashment of go away wage on the time of retirement

Exemption from quantity acquired as go away wage is obtainable below Part 10(10AA). For the aim of availing exemption below  part 10(10AA), the workers are divided into 2 sorts of classes:-

  1. Govt Workers (Central Govt and State Govt staff solely): Go away encashment of accrued go away on the time of retirement, whether or not on superannuation or in any other case, acquired by a Govt worker, is totally exempt from tax. No tax can be levied on any quantity acquired as go away encashment by govt staff on retirement.
  2. Different Workers: Go away encashment of accrued go away on the time of retirement whether or not on superannuation or in any other case acquired by another worker (besides these coated above) is exempt from tax to a sure restrict. In such a case, the least of the next shall be exempted:-
    1. Go away encashment truly acquired
    2. 10 months “common wage”
    3. Money equal of unavailed go away calculated on the idea of most 30 days go away for yearly of accomplished service.
    4. Quantity specified by the Govt i.e. Rs. 3,00,000

Related Factors concerning Tax on Go away Encashment

  1. Wage for the aim of above computation means “Primary + Dearness Allowance”. It additionally contains fee based mostly on mounted proportion of turnover achieved by the worker. Nonetheless, another allowance acquired is to not be included within the computation of Wage.
  2. Common Wage is to be computed on the idea of the common wage drawn by the worker throughout the interval of 10 months instantly previous his retirement.
  3. If the worker has acquired go away encashment in any a number of earlier earlier yr(s) additionally and had availed of the exemption in respect of such quantity, the restrict of Rs. 3,00,000 specified above shall be decreased by the quantity of exemption availed earlier.
  4. Go away encashment acquired by the members of the family after the dying of an worker shouldn’t be chargeable to tax within the fingers of the member of the family.
  5. The retirement of worker could also be of varied varieties. It might be on superannuation or voluntary equivalent to resignation. This part applies equally to a case of voluntary retirement on account of resignation.
  6. Quantity acquired as Go away Encashment on Resignation by an worker can be handled in the identical method as the quantity acquired on Retirement. Due to this fact, tax can be levied on the quantity acquired on Go away Encashment in the identical method as amt acquired on Resignation

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