Whether the provision of section 10A(AA) of Income tax Act 1961, regarding exemption of leave encashment on retirement which is applicable to Govt/State Govt. employees is also applicable to public sector undertaking like nationalized bank employees ?
If Leave salary encashment is received by any employee while in employment then it is fully taxable in the hands of employee. While if leave encashment is received in case of retirement or superannuation or resignation, then exemption is available U/s.10(10AA) up to the following limits.
In case of Central government or State government employee(excluding employees of a local authority or statutory corporation) – Fully Exempt
In case of any other employee –
Least of the following is exempt:-
· Actual amount received
· 10 months average salary
· Average salary x leaves at the credit of an employee (leaves cannot exceed 30 days for every completed year of service, fraction of a year is to be ignored)
Salary includes basic pay, dearness allowance(if it forms part of the retirement benefits) and percentage wise fixed commission on turnover
Average Salary = Average of salary drawn in the last 10 months immediately preceding the date of retirement.
If leave encashment is received by an employee from more than one employer in the same previous year or in different previous years the aggregate maximum amount exempt from tax on account of gratuity cannot exceed Rs. 3,00,000.
Leave salary paid to the legal heirs of the assessee, who dies during the employment will not be taxable.