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Encashment of leave

Whether the leave encashment is for earned leave or unearned leave, it is taxable subject to relief under Sec. 10(10AA) of the Act. It is not understood how the amount is described as encashment of “unearned” leave. If it is over and above the leave encashment, for earned leave or otherwise, it will be taxable under Sec. 17(3) as any amount “due to or received whether in lumpsum or otherwise.... after cessation of his employment”.

The amount is prima facie taxable but subject to Sec. 10(10AA) which gives exemption, subject to a ceiling prescribed therein for cash equivalent of the leave salary in respect of period of earned leave to his credit at the time of retirement. Even if the description of the amount as stated by the reader is towards “unearned leave”, it should make no difference as it would also be treated as part of any amount received for encashment of earned leave together or alone, if no other payment is received for earned leave. This exemption subject to this formula is available under the statute. There is no total exemption as wrongly inferred by the reader.

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