Dear Seniors, Are the earned leaves are tax emempted under IT Act? If yes what is the ceiling of it for the same? Thanks....!!!!
From India, Pune
467From India, Pune
Hi Prashnat,
See my below reply...
Leave encashment is expempted (on basic) once in a lifetime and that is during supperannuation/retirement.
As per section 10(10AA) the wording is Retirement or otherwise (otherwise is conferred as Early Retirement, Resignation and Termination)
There are many case laws in support of this argument (142 CTR 325 CIT vs. D P Malhotra, dated July 28, 1997).
No worries we are following the law of the land.
Brief case summary would help in this regard, how the CIT views Resignation/Retirement.
---------------------------------------------------------
This treatment is also substantiated by a judgment, 142 CTR 325 CIT vs D P Malhotra, dated July 28, 1997. The circumstances were the same as Batra’s. That is, the assessee had resigned from his job and claimed exemption u/s 10(10AA) for the amount of leave salary.
The claim was rejected by the I-T officer, as he believed the benefit of Sec 10(10AA) was only available in cases where the amount was received by the assessee at the time of retirement, not resignation.
The CIT ruled in the taxpayer’s favour. The CIT held that ‘retirement’ was a word of wide import. In the context of employment, it means conclusion of a career. However, one meaning of the word is ‘resign’, validated by a legal thesaurus.
Thus, both ‘retirement’ and ‘resignation’ result in the ending of relationship with an employer. Once an employee resigns, his service stands terminated from the date his letter of resignation is accepted by the appropriate authority, unless there is any law or statutory rule governing the conditions of service to the contrary. In other words, on acceptance of resignation, the employee stands retired from service.
The word ‘retirement’ has not been used in the law in the restricted sense to mean ‘retirement on superannuation’. And, it is clear from the language of Section (10AA) itself that it has been used in the widest possible terms to mean and include all cases of retirement, whether on superannuation or otherwise. What is relevant is the ‘retirement’- how it took place is immaterial for the purpose of this clause.
It is, therefore, clear that if on retirement, even on resignation by the employee, an employee gets by way of leave encashment any amount, Section 10(10AA) would apply and the assessee would be entitled to the benefit of the said clause to the extent mentioned therein.
The same view is supported by the decision of the Madras High Court in CIT vs. R J Shahney (1986) 54 CTR (Mad) 360 In that case,the assessee had resigned from employment.
The court had held: “The retirement may be of various kinds. It may be on superannuation or voluntary. If there is any voluntary retirement from service, we are satisfied that the provisions of Section 10(10AA) would apply.”
Regards,
From India, Pune
See my below reply...
Leave encashment is expempted (on basic) once in a lifetime and that is during supperannuation/retirement.
As per section 10(10AA) the wording is Retirement or otherwise (otherwise is conferred as Early Retirement, Resignation and Termination)
There are many case laws in support of this argument (142 CTR 325 CIT vs. D P Malhotra, dated July 28, 1997).
No worries we are following the law of the land.
Brief case summary would help in this regard, how the CIT views Resignation/Retirement.
---------------------------------------------------------
This treatment is also substantiated by a judgment, 142 CTR 325 CIT vs D P Malhotra, dated July 28, 1997. The circumstances were the same as Batra’s. That is, the assessee had resigned from his job and claimed exemption u/s 10(10AA) for the amount of leave salary.
The claim was rejected by the I-T officer, as he believed the benefit of Sec 10(10AA) was only available in cases where the amount was received by the assessee at the time of retirement, not resignation.
The CIT ruled in the taxpayer’s favour. The CIT held that ‘retirement’ was a word of wide import. In the context of employment, it means conclusion of a career. However, one meaning of the word is ‘resign’, validated by a legal thesaurus.
Thus, both ‘retirement’ and ‘resignation’ result in the ending of relationship with an employer. Once an employee resigns, his service stands terminated from the date his letter of resignation is accepted by the appropriate authority, unless there is any law or statutory rule governing the conditions of service to the contrary. In other words, on acceptance of resignation, the employee stands retired from service.
The word ‘retirement’ has not been used in the law in the restricted sense to mean ‘retirement on superannuation’. And, it is clear from the language of Section (10AA) itself that it has been used in the widest possible terms to mean and include all cases of retirement, whether on superannuation or otherwise. What is relevant is the ‘retirement’- how it took place is immaterial for the purpose of this clause.
It is, therefore, clear that if on retirement, even on resignation by the employee, an employee gets by way of leave encashment any amount, Section 10(10AA) would apply and the assessee would be entitled to the benefit of the said clause to the extent mentioned therein.
The same view is supported by the decision of the Madras High Court in CIT vs. R J Shahney (1986) 54 CTR (Mad) 360 In that case,the assessee had resigned from employment.
The court had held: “The retirement may be of various kinds. It may be on superannuation or voluntary. If there is any voluntary retirement from service, we are satisfied that the provisions of Section 10(10AA) would apply.”
Regards,
From India, Pune
Dear Prashant,
As explained above by Vinod IT exemption as per the limit under sec.10 of IT Act only for terminal leave encashments. Probably your query relates to encashment while in service. In which case there is no separate exemption of such leave encashment. In some establishments like banks an employee can avail leave encashment when they avail LTA in some estt. it is anytime. In these cases there is no exemption from tax. Such leave encashments would be treated as Income from salary and taxed according to general IT rates applicable for salary income.
kumar.s.
From India, Bangalore
As explained above by Vinod IT exemption as per the limit under sec.10 of IT Act only for terminal leave encashments. Probably your query relates to encashment while in service. In which case there is no separate exemption of such leave encashment. In some establishments like banks an employee can avail leave encashment when they avail LTA in some estt. it is anytime. In these cases there is no exemption from tax. Such leave encashments would be treated as Income from salary and taxed according to general IT rates applicable for salary income.
kumar.s.
From India, Bangalore
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