Defined Benefit Plans

LEAVE ENCASHMENT

Different types of leaves that an employee may have : Casual Leave b. Sick Leave c. Privilege Leave g
a.

Casual Leave
For casual or Emergency purposes To be used within year No N carry f forward d No accumulation

Sick Leave
For sickness purposes Carry forward Accumulation generally allowed as per A l ti ll ll d service rules

Privileged Leave
1. 1 For general purposes purposes. 1. It can be carry forwarded and accumulated during service as per service rules. 2. is non- t t t 2 It i non-statutory b benefit t employees fit to l on exit from service

Taxation
ENCASHMENT DURING THE COURSE of EMPLOYMENT 1. Is fully taxable

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

a.

Is fully exempt for only Central and State government employees l

Taxation
b. OTHER EMPLOYEES Section 10(10AA)(ii) LEAVE ENCASHMENT is exempt minimum of the following : 1. Leave Encashment actually received 1 2. 10 * Avg salary of last 10 months 3. Rs 300000 3 Rs.300000 4. Cash equivalent of un-availed leave calculated unon the basis of maximum 30 days leave for every completed year

SALARY = Basic Pay + D. A forming part of D A. retirement benefit + Commission based upon fixed % of the turnover

Average salary
Average of the salary drawn by the employee during the period of 10 months immediately preceding the retirement.

LEAVE SALARY paid to legal heirs of a deceased employee is

not liable to tax. tax.

Concept Ch k C t Checkers

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

Ans. 26*30 Ans 26 30 = 780

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

Ans. 24*30 Ans 24 30 =720

Q3. Mr. X joined on 1st December 1980 in Q3 Mr XYZ Ltd. and retired on 1st December 2002. 2002 He got leave encashment of Rs.415000. His last drawn salary is Rs.40000.His Rs 40000 His last 10 months salary is 3.5 35 lacs. He availed 160 leave during the service. service What will be his taxable leave salary amount?

Ans. Ans 115000 Least of four is exempted i. A t ll received i.e. 415000 Actually i di ii. 300000 iii. 10*(350000/10) * = 350000 iv. (22 30 160)/30 iv (22*30-160)/30 * 35000 = 583333.333 583333 333 Taxable ( 415000 300000 ) = 115000

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

Ans. Ans 297500 Sol. Least of four is exempted i. 315000 ii. 300000 iii. 10*25500=255000 iv. (23 30 340)/30 25500=297500 iv (23*30-340)/30 *25500=297500

Q5. Mr. X joined on 1 1 91 and retires on 1-1-91 1/1/08. He got amount of Rs.36000 as leave encashment salary against 150 days of p y p unavailed leave. His employer provides 40 days leave for each year of service. How much amount of leave salary would be y tax free if his Average salary for the last 10 months is Rs.8000

Ans. Nil Sol least of four is exempted i. 36000 i ii. 300000 iii. iii 10*8000 iv. 0/30 * 8000 Max permissible leave 17*30=510 Leave taken (17*40-150) = 530

Q6 Q6. Mr. X putting service 12 y s During se ce he putt g se ce yrs. u g service e availed 4 months leave and had 250 days unavailed leave at credit. His Hi employer pays encashment benefit on the last l h b fi h l drawn salary on surrendering of un-availed leave up to 12 months. The employees 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. Sol 250/30 * 46000 = 383333.3333 383333 3333

Q Q7. Mr. A was employed with ABC Ltd. He retired p y w.e.f. 1-2-2008 after completing a service of 25 1years and 8 months. He submits the following information : i f i Basic Salary Rs.15000 p.m. at retirement D.A. 100% of basic (40% of which forms part of salary of retirement benefits) He was entitled to 40 days leave for every year of service. service He received leave encashment amounting to Rs.60000 on account of 280 days leave. Calculate taxable amount.

Ans. (60000 000) = 39000 s (60000-21000) Sol. Least of four is exempted i. 60000 ii. 300000 iii. 10*(15000+15000*.4)=210000 iv. 30/30*21000=21000 Max permissible leave as per act =25*30 = 750 Leave already taken (25*40-280) = 720

Q8. Mr. X had been working with AAA Ltd. in a tribal area since 01-12-1996. 01-12Basic Salary y Rs.8000 p.m. at retirement p D.A. 40% of Basic (50% of which forms part of salary for retirement benefits) y ) 2% commission on turnover Rs.500000 at the end of year. He retires on 15-1-2009. He receives Rs.250000 of 15accumulated leave of 235 days. He was entitled to 35 days leave for every year of service. Calculated taxable amount?

Ans. (250000-60861.1) = 189138.9 ( ) Sol. Least of four is exempted i. 250000 ii. 300000 iii. 10*10433.333=104333.333 iv. 175/30 10433.333 60861.1 175/30*10433.333=60861.1 Avg salary = (8000+8000*.4*.5+500000*.02/12)= 10433.333 Max permissible leave = 12*30=360 12*30 360 Availed leave during employment(12*35-235) = 185 Encashable leave 360-185 = 175

Q9. Mr. y retires on March 10, 2008 from a private sector company after rendering 39 years of t ft d i f service. According to the service rules he is entitled for 26 days leave for each year of completed service. During his service he has l d i D i hi i h h availed and encashed his leave of 120 days and 160 days respectively. Basic and D.A. (forming y p y ( g part of retirement benefit) Paid to Mr. y as follows : Period basic p.m. pm D.A DA 1-4-07 to 31-11-07 31-116000 1200 1-12-07 to 10-03-08 1210-038000 1400 At retirement he got leave encashment Rs.258000 Find the leave salary chargeable to Tax.

Q10. Mr. Ram retires on May 20, 2008 from a private sector company after rendering 32 years of service. According to the service rules he is entitled for 36 days leave for each year of completed service. During his service he has availed and encashed his leave of 100 days and 150 days respectively Salary and D A respectively. D.A. (forming part of retirement benefits) Paid to Mr. Ram as follows : 1-4-07 to 31-12-07 31-125000 1000 1-1-08 to 20-08-08 t 20-086000 1200 At retirement he got leave encashment Rs.218000 Find the leave salary chargeable to Tax Tax.

Period

basic p.m.

D.A