Monday, Jun 07, 2004
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Q: According to the rules of the University from which I retired I have become entitled to leave encashment of 330 days, while I am advised that the exemption is limited to 300 days so that the balance becomes taxable. Is this correct? A: The terminal leave encashment is exempt under Sec. 10(10AA) subject to the conditions thereunder. Sec. 10(10AA)(ii) read with Explanation prescribes the manner of working number of days for which leave encashment has to be calculated. Sec. 10(10AA)(ii), which applies for persons other than Government servants, reads as under: "(ii) Any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether on superannuation or otherwise, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government." The ceiling as to the number of days is provided under an Explanation to the sub-section, which reads as under: "Explanation — For the purposes of sub-clause (ii) — "the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired." The ceiling limit is prescribed by Notification No. SO 585(E) dated May 31, at Rs. 30,000 with retrospective effect from July 1, 1986. The eligible period of leave may have to be curtailed, if the number of days for which leave encashment is granted, is based upon entitlement exceeding 30 days for every year of actual service. Where there is conversion of half pay leave for purposes of encashment as is indicated in the detailed letter of the reader, it should also count for encashment on the basis that half pay leave is also eligible as for full pay leave subject to its being halved. Any excess over and above the limit of exemption either with reference to number of days or the amount will be taxable.
S. Rajaratnam
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