Defined Benefit PlansDefined Benefit PlansDefined Benefit PlansDefined Benefit Plans

LEAVE ENCASHMENTLEAVE ENCASHMENTLEAVE ENCASHMENTLEAVE ENCASHMENT

Different types of leaves that an employeeDifferent types of leaves that an employeeDifferent types of leaves that an employee Different types of leaves that an employee may have :may have :

a.a. Casual LeaveCasual Leaveb.b. Sick LeaveSick Leavec.c. Privilege LeavePrivilege Leavegg

Casual LeaveCasual Leave

For casual or Emergency purposesFor casual or Emergency purposesTo be used within yearN f dNo carry forwardNo accumulation

Sick LeaveSick Leave

For sickness purposesFor sickness purposesCarry forwardA l ti ll ll dAccumulation generally allowed as per service rules

Privileged LeavePrivileged LeavePrivileged LeavePrivileged Leave

1 For general purposes1 For general purposes1. For general purposes.1. For general purposes.1. It can be carry forwarded and 1. It can be carry forwarded and

accumulated during service as per serviceaccumulated during service as per serviceaccumulated during service as per service accumulated during service as per service rules.rules.

2 It i2 It i t t t b fit t lt t t b fit t l2. It is non2. It is non--statutory benefit to employees statutory benefit to employees on exit from serviceon exit from service

TaxationTaxationTaxationTaxation

ENCASHMENT DURING THE COURSE ofENCASHMENT DURING THE COURSE ofENCASHMENT DURING THE COURSE of ENCASHMENT DURING THE COURSE of EMPLOYMENTEMPLOYMENT

1. Is fully taxable1. Is fully taxable

TaxationTaxationTaxationTaxation

Encashment of accumulated leave at theEncashment of accumulated leave at theEncashment of accumulated leave at the Encashment of accumulated leave at the time of retirement time of retirement Section 10(10AASection 10(10AA)(i))(i)

a.a. Is fully exempt for only Central and Is fully exempt for only Central and llState government employeesState government employees

TaxationTaxationTaxationTaxationb. b. OTHER EMPLOYEES Section 10(10AA)(ii)OTHER EMPLOYEES Section 10(10AA)(ii)

LEAVE ENCASHMENTLEAVE ENCASHMENT is exemptis exempt minimumminimum ofofLEAVE ENCASHMENT LEAVE ENCASHMENT is exemptis exempt minimumminimum of of the following :the following :

11 Leave Encashment actually receivedLeave Encashment actually received1.1. Leave Encashment actually receivedLeave Encashment actually received2.2. 10 * Avg salary of last 10 months10 * Avg salary of last 10 months33 Rs 300000Rs 3000003.3. Rs.300000Rs.3000004.4. Cash equivalent of unCash equivalent of un--availed leave calculated availed leave calculated

on the basis of maximum 30 days leave foron the basis of maximum 30 days leave foron the basis of maximum 30 days leave for on the basis of maximum 30 days leave for every completed yearevery completed year

SALARY = Basic Pay + D A forming part ofSALARY = Basic Pay + D A forming part ofSALARY = Basic Pay + D. A. forming part of SALARY = Basic Pay + D. A. forming part of retirement benefit + Commission retirement benefit + Commission

based upon fixed % of the turnoverbased upon fixed % of the turnoverbased upon fixed % of the turnover based upon fixed % of the turnover

Average salaryAverage salaryAverage salaryAverage salary

Average of the salary drawn by theAverage of the salary drawn by theAverage of the salary drawn by the Average of the salary drawn by the employee during the period of employee during the period of

10 months 10 months immediately precedingimmediately preceding the the retirement.retirement.

LEAVE SALARY paid to legal heirs of aLEAVE SALARY paid to legal heirs of aLEAVE SALARY paid to legal heirs of a LEAVE SALARY paid to legal heirs of a deceased employee is deceased employee is

not liable to taxnot liable to taxnot liable to taxnot liable to tax..

C t Ch kC t Ch kConcept CheckersConcept Checkers

1 If earned leave credited to Rohit’s a/c is1 If earned leave credited to Rohit’s a/c is1. If earned leave credited to Rohit s a/c is 1. If earned leave credited to Rohit s a/c is 40 days per year, what will be the 40 days per year, what will be the maximum permissible unmaximum permissible un--availed leaveavailed leavemaximum permissible unmaximum permissible un availed leave availed leave under the income tax act, 1961 if he under the income tax act, 1961 if he served for 26 years?served for 26 years?served for 26 years?served for 26 years?

Ans 26*30 = 780Ans. 26 30 = 780

Q2 If earned leave credited to Mohit’s a/c isQ2 If earned leave credited to Mohit’s a/c isQ2. If earned leave credited to Mohit s a/c is Q2. If earned leave credited to Mohit s a/c is 24 days per year, what will be the 24 days per year, what will be the maximum permissible unmaximum permissible un--availed leaveavailed leavemaximum permissible unmaximum permissible un availed leave availed leave under the income tax act, 1961 if he under the income tax act, 1961 if he served for 30 years?served for 30 years?served for 30 years?served for 30 years?

Ans 24*30 =720Ans. 24 30 =720

Q3 Mr X joined on 1Q3 Mr X joined on 1stst December 1980 inDecember 1980 inQ3. Mr. X joined on 1Q3. Mr. X joined on 1 December 1980 in December 1980 in XYZ Ltd. and retired on 1XYZ Ltd. and retired on 1stst December December 2002 He got leave encashment of2002 He got leave encashment of2002. He got leave encashment of 2002. He got leave encashment of Rs.415000. His last drawn salary is Rs.415000. His last drawn salary is Rs 40000 His last 10 months salary is 3 5Rs 40000 His last 10 months salary is 3 5Rs.40000.His last 10 months salary is 3.5 Rs.40000.His last 10 months salary is 3.5 lacs. He availed 160 leave during the lacs. He availed 160 leave during the service What will be his taxable leaveservice What will be his taxable leaveservice. What will be his taxable leave service. What will be his taxable leave salary amount?salary amount?

Ans 115000Ans. 115000Least of four is exempted

A t ll i d i 415000i. Actually received i.e. 415000ii. 300000iii. 10*(350000/10) * = 350000iv (22*30-160)/30 * 35000 = 583333 333iv. (22 30 160)/30 35000 = 583333.333Taxable ( 415000 – 300000 ) = 115000

Q4 Mr Y joined on 1Q4 Mr Y joined on 1stst January 1985 in XYZJanuary 1985 in XYZQ4. Mr. Y joined on 1Q4. Mr. Y joined on 1 January 1985 in XYZ January 1985 in XYZ Ltd. and retired on 1Ltd. and retired on 1stst August 2008. He August 2008. He got leave encashment of Rs 315000 Hisgot leave encashment of Rs 315000 Hisgot leave encashment of Rs.315000. His got leave encashment of Rs.315000. His last drawn salary is Rs.22000.His last 10 last drawn salary is Rs.22000.His last 10 months average salary is 25500 Hemonths average salary is 25500 Hemonths average salary is 25500. He months average salary is 25500. He availed 340 leave during the service. What availed 340 leave during the service. What will be his taxwill be his tax--exempted leave salaryexempted leave salarywill be his taxwill be his tax exempted leave salary exempted leave salary amount?amount?

Ans 297500Ans. 297500Sol. Least of four is exempted

315000i. 315000ii. 300000iii. 10*25500=255000iv (23*30-340)/30 *25500=297500iv. (23 30 340)/30 25500=297500

Q5. Mr. X joined on 1-1-91 and retires onQ5. Mr. X joined on 1 1 91 and retires on 1/1/08.

He got amount of Rs.36000 as leaveHe got amount of Rs.36000 as leave encashment salary against 150 days of unavailed leave. His employer provides 40 p y pdays leave for each year of service.

How much amount of leave salary would be ytax free if his Average salary for the last 10 months is Rs.8000

Ans. NilAns. NilSol least of four is exemptedi 36000i. 36000ii. 300000iii 10*8000iii. 10*8000iv. 0/30 * 8000

Max permissible leave 17*30=510Leave taken (17*40-150) = 530

Q6. Mr. X putting service 12 yrs. During service he Q6 putt g se ce y s u g se ce eavailed 4 months leave and had 250 days un-availed leave at credit.

Hi l h b fi h lHis employer pays encashment benefit on the last drawn salary on surrendering of un-availed leave up to 12 months.up to 12 months.

The employee’s terminal salary was Rs.46000 and Avg salary was Rs.45000 p.m. What was the amount of leave salary paid to him by the employer?

Sol 250/30 * 46000 = 383333 3333Sol. 250/30 46000 = 383333.3333

Q7. Mr. A was employed with ABC Ltd. He retired Q7. Mr. A was employed with ABC Ltd. He retired Q p yQ p yw.e.f. 1w.e.f. 1--22--2008 after completing a service of 25 2008 after completing a service of 25 years and 8 months. He submits the following years and 8 months. He submits the following i f ii f iinformation :information :

Basic SalaryBasic Salary Rs.15000 p.m. at retirementRs.15000 p.m. at retirementD.A.D.A. 100% of basic (40% of 100% of basic (40% of

which forms part of salary of which forms part of salary of retirement benefits)retirement benefits)retirement benefits)retirement benefits)

He was entitled to 40 days leave for every year of He was entitled to 40 days leave for every year of service He received leave encashmentservice He received leave encashmentservice. He received leave encashment service. He received leave encashment amounting to Rs.60000 on account of 280 days amounting to Rs.60000 on account of 280 days leave. Calculate taxable amount.leave. Calculate taxable amount.leave. Calculate taxable amount.leave. Calculate taxable amount.

Ans. (60000-21000) = 39000s (60000 000) 39000Sol. Least of four is exemptedi. 60000ii. 300000iii. 10*(15000+15000*.4)=210000iv. 30/30*21000=21000Max permissible leave as per act =25*30

= 750Leave already taken (25*40-280) = 720

Q8. Mr. X had been working with AAA Ltd. in aQ8. Mr. X had been working with AAA Ltd. in aQ8. Mr. X had been working with AAA Ltd. in a Q8. Mr. X had been working with AAA Ltd. in a tribal area since 01tribal area since 01--1212--1996. 1996.

Basic SalaryBasic Salary Rs.8000 p.m. at retirementRs.8000 p.m. at retirementyy ppD.A.D.A. 40% of Basic (50% of which forms part 40% of Basic (50% of which forms part

of salary for retirement benefits)of salary for retirement benefits)y )y )2% commission on turnover Rs.500000 at the end 2% commission on turnover Rs.500000 at the end

of year.of year.He retires on 15He retires on 15--11--2009. He receives Rs.250000 of 2009. He receives Rs.250000 of

accumulated leave of 235 days. He was entitled accumulated leave of 235 days. He was entitled to 35 days leave for every year of service.to 35 days leave for every year of service.

Calculated taxable amount?Calculated taxable amount?

Ans. (250000-60861.1) = 189138.9( )Sol. Least of four is exemptedi. 250000

300000ii. 300000iii. 10*10433.333=104333.333iv. 175/30*10433.333=60861.1iv. 175/30 10433.333 60861.1Avg salary = (8000+8000*.4*.5+500000*.02/12)=

10433.333Max permissible leave 12*30 360Max permissible leave = 12*30=360Availed leave during employment(12*35-235) = 185Encashable leave 360-185 = 175

Q9. Mr. y retires on March 10, 2008 from a private Q9. Mr. y retires on March 10, 2008 from a private t ft d i 39 ft ft d i 39 fsector company after rendering 39 years of sector company after rendering 39 years of

service. According to the service rules he is service. According to the service rules he is entitled for 26 days leave for each year of entitled for 26 days leave for each year of

l d i D i hi i h hl d i D i hi i h hcompleted service. During his service he has completed service. During his service he has availed and encashed his leave of 120 days and availed and encashed his leave of 120 days and 160 days respectively. Basic and D.A. (forming 160 days respectively. Basic and D.A. (forming y p y ( gy p y ( gpart of retirement benefit) Paid to Mr. y as part of retirement benefit) Paid to Mr. y as follows :follows :

PeriodPeriod basic p mbasic p m D AD APeriodPeriod basic p.m.basic p.m. D.AD.A11--44--07 to 3107 to 31--1111--0707 60006000 1200120011--1212--07 to 1007 to 10--0303--0808 80008000 14001400At retirement he got leave encashment Rs.258000At retirement he got leave encashment Rs.258000Find the leave salary chargeable to Tax.Find the leave salary chargeable to Tax.

Q10. Mr. Ram retires on May 20, 2008 from aQ10. Mr. Ram retires on May 20, 2008 from aQ10. Mr. Ram retires on May 20, 2008 from a Q10. Mr. Ram retires on May 20, 2008 from a private sector company after rendering 32 years private sector company after rendering 32 years of service. According to the service rules he is of service. According to the service rules he is entitled for 36 days leave for each year ofentitled for 36 days leave for each year ofentitled for 36 days leave for each year of entitled for 36 days leave for each year of completed service. During his service he has completed service. During his service he has availed and encashed his leave of 100 days and availed and encashed his leave of 100 days and 150 days respectively Salary and D A150 days respectively Salary and D A150 days respectively. Salary and D.A.150 days respectively. Salary and D.A.

(forming part of retirement benefits) Paid to Mr. (forming part of retirement benefits) Paid to Mr. Ram as follows :Ram as follows :

PeriodPeriod basic p.m.basic p.m. D.AD.A11--44--07 to 3107 to 31--1212--0707 50005000 1000100011 11 08 t 2008 t 20 0808 0808 60006000 1200120011--11--08 to 2008 to 20--0808--0808 60006000 12001200At retirement he got leave encashment Rs.218000At retirement he got leave encashment Rs.218000Find the leave salary chargeable to TaxFind the leave salary chargeable to TaxFind the leave salary chargeable to Tax.Find the leave salary chargeable to Tax.