Is leave encashment fully taxable?


(i)Leave Encashment during service is fully taxable in all cases, relief u/s 89(1) if applicable may be claimed for the same. 

(ii) Any payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt. 

(iii) In case of other employees, the exemption is to be limited to the least of following:

(a) Cash equivalent of unutilized earned leave (earned leave entitlement can not exceed 30 days for every year of actual service)

(b) 10 months average salary

(c) Leave encashment actually received. This is further subject to a limit of Rs 3,00,000 for retirements after 02.04.1998.

(iv) Leave salary paid to legal heirs of a deceased employee in respect of privilege leave standing to the credit of such employee at the time of death is not taxable.

Source: Income Tax Department



Legal Change SAP release Snote :  2061190 – Leave Encashment : Factors for Leave Encashment Exemption

Symptom

Leave Encashment is received by the employee at the time of seperation or retirement from the employment.The maximum leave encashment exemption limit is upto 3 lacs.

The system computes exemption on the four factors out of which the minimum exemption amount is considered.The following are the factors:

1.) Leave Encashment Amount

2.) Exemption Limit

3.) Average Monthly Salary * Number of months

4.) Average Monthly Salary * Number of Months of leave encashed

As observed in the system, the 4th factor is not required in calculating the minimum amount for the exemption.

Hence, removing the 4th Factor i.e Average Monthly Salary * Number of Months of leave encashed

 

Other Terms

HINCALC0, INLEA, PC00_M40_CALC, PCLEAIN0

 

Reason and Prerequisites

Legal Change

 

Solution

Example for Leave Encashment Exemption :

Details of the employee are as follows :

Leave Encashment Received = Rs. 1,69,000

Average Monthly Salary = Rs. 8,500

So, the exemption on leave encashment received by the employee depends on the following three factors :

1.) Leave Encashment Amount = 1,69,000

2.) Exemption Limit = 3,00,000

3.) Average Monthly Salary * Number of months = 8,500 * 10 = 85,000

So, the system calculates the minimum exemption amount as 85,000

The inconsistency described under ‘Symptom’ is corrected by making relevant code changes.

To get the changes, apply the HR Support Package(s) indicated for your release in the ‘Reference to Support Packages’ section of this Note.

Alternatively, apply the correction instructions and manual instructions attached with the note to get the changes in your system

  

  

Header Data

  
Released On 14.11.2014 18:41:17   
Release Status Released for Customer   
Component PY-IN India  
Priority   Correction with medium priority  
Category   Legal change  

  

  

Validity

Software Component

From Rel.

To Rel.

And Subsequent

SAP_HRCIN

600

600

604

604

608

608

609

609

  

  

Correction Instructions

Correction Instructions

Software Component

Valid from

Valid to

Number

SAP_HRCIN

600

600

1491346

SAP_HRCIN

604

604

1491345

SAP_HRCIN

608

608

1491344

  

  

Support Packages & Patches

Support Packages

Software Component

Release

Support Package

SAP_HRCIN

600

SAPK-600B5INSAPHRCIN

604

SAPK-60481INSAPHRCIN

608

SAPK-60809INSAPHRCIN  

Source : Service Market place

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