Leave encashment denotes an amount of money obtained in exchange for a period of leave not availed by an employee. An employee can take encashment of acquired leave during the period of retirement. During the maintenance of service or at the time of resigning the job, employees do it.
How leave encashment is calculated?
Calculate the amount of Leave Encashment as follows:
Divide the basic salary plus Dearness Allowance by 30. The number of days EL (Maximum 300 days) multiplies the result.
What are the Benefits of leave encashment?
The employer provides leave encashment to the employee, allowing them to monetarily benefit from leaves not taken. You should keep in mind that the leave encashment is not tax-free, however, the exemption of a certain amount has been provided by the Income Tax Department under section 10(10AA).
What is the major advantage of tax exception of leave encashment?
Leave encashment received by the employee at the time of retirement is tax-free subject to the conditions and up to the limit as specified under Sec 10 (10AA). The tax benefits are as per the Income Tax Act, 1961 and Income Tax Rules, 1962. This is one of the major advantages of the tax exception of leave encashment.
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