Leave encashment and method to calculate leave Salary

1. Calculation of Leave
Salary
SHILPA SHARMA
ASSISTANT PROFESSOR
ADVANCED EDUCATIONAL INSTITUTIONS
www.advanced.edu.in

2. Meaning Of Leave Encashment
www.advanced.edu.in
Encashment of leave by surrendering the leaves
standing credited in individuals account is called leave
salary.

3. Flow of The PPT
1. Leave Encashment
2. Taxable In Various categories
3. Limits Applicable
4. Calculation Of Leave Encashment
5. Points To Remember
www.advanced.edu.in

4. Introduction Of The Topic
Status Of Employee Taxability Leave Encashment Nature
For Government Employees It is fully exempt from tax Leaves calculated at the time of
retirement or when employee
leaving the job
For Non- Government Employee It is fully or partially exempt from
tax in certain cases
Leaves calculated at the time of
retirement or when employee
leaving the job
For Government/Non
Government Employee
It is chargeable to tax and relief
can be taken under section 89
Leaves calculated during the
continuity of employment
www.advanced.edu.in

5. Calculating Leave Salary
www.advanced.edu.in
Leave Salary during
the service period is
fully taxable
Leave Salary after
retirement for
government
employees is fully
exempt
Leave Salary after retirement
for other employee is partly
taxable . Least of the following
is exempt:
a) Amount received
b) Maximum Limit 3lakhs
c) 10 months salary*
d) 10 months average salary X
number of leave credited in
individual's account.

6. Image or a smart chart
Description
www.advanced.edu.in

7. Points to calculate 10 month’s salary
1. Salary = Basic Salary + DA terms + Fixed Percentage of commission of last 10 months
immediately preceding to retirement day
As per Income tax Maximum allowed leaves are 30days for One complete year
2. If leaves are of 45 days then it is taken as for 30days and if leaves are 23 days then it will be
taken as 23 days only for Encashment.
3. For Non Government Employee Leave Encashment Is Taxable In Case Of Retirement And
Retrenchment.
Formula:
www.advanced.edu.in
Annual Leave Encashment = (Leave Days x 12) x (Gross Salary x 12 / 365)

8. Points To Remember
1. Leave Encashment cannot exceed the limit prescribed by the government that is Rs 3,00,000.
2. Salary paid to legal heirs of the deceased employee in respect of privilege leave standing to the
credit of such employee at the time of his/her death is not taxable as salary.
3. Sum equivalent of leave salary received by the family of a government servant who died in
harness, is not taxable in the hands of the recipients.
4. In case of Non-Government employee, Leave Salary received on Resignation or Retrenchment
is taxable.
5. Leave Salary received on Voluntary Retirement or Compulsory Retirement is exempt
u/s.10(10AA) (ii) to the extent specified therein.
www.advanced.edu.in

9. Image or a smart chart
Description
www.advanced.edu.in

10. SHILPA SHARMA
ASSISTANT PROFESSOR
shilpa1763@gmail.com
Advanced Educational Institutions,
70 km Milestone,
Delhi-Mathura Road, Dist. Palwal, Haryana-121105
+91–1275–398400, 302222
www.advanced.edu.in
www.advanced.edu.in