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TREATMENT OF LEAVE

SALARY- SEC 10(10AA)

BY: HARSH SHAH (B-33)


RUTWIK PANDYA (B-21)

LEAVE SALARY
Employees are entitled to leaves of various types in their
service.
Either these are availed by them
For what is not availed gets
1.either lapsed or these are
2.allowed to be encashed every year or are
3.accumulated and encashed after retirement or death.
EXAMPLE: entitled leave 60 days, employee avails 20 so he has 40
days of leave as an option to get encashed or to accumulate it
and get encashed at retirement.

WHAT IS EXEMPTIBLE AND WHAT IS


NOT?
Encashment of leave during tenure of service:
FULLY TAXABLE (relief under Section 89)
Encashment of accumulated leave at the time of
retirement: (Sec 10(10aa))

MEANING OF SALARY FOR LEAVE


PURPOSES
SALARY: Salary, includes dearness allowance to the extent the terms
of employment so provide but excludes all the other allowances and
perquisites. Further it also includes commission based upon the fixed
percentage of turnover achieved by employee.
AVERAGE SALARY: Average salary is to be calculated on the basis of
the average salary drawn by the employee during the period of 10
months immediately preceding his retirement.
retireing on 31.1.2014 - A.S=1.4.2013 TO 31.1.2014 divided by10
retireing on 15.1.2014 - A.S=16.4.2013 TO 15.1.2014 divided by 10

LEAVE ENCASHMENT TREATMENT

Leave Salary : sec.10 (10AA)


Means encashment of leave standing to ones credit.
Leave encashment during continuation of job taxable
Leave encashment on retirement :
Govt Employee(Central and State Govt.) : Fully exempt
Non Govt Employee(includes empl. Of local authority,public sector corp.,
and municipal corp.) :
Exemption is limited to the MINIMUM OF :
-Leave encashment actually recieved
-Cash equivalent of unavailed leave salary on the basis of 30 days
leave and average salary
-10 months average leave
-Specified amount Rs. 3 lakhs ( w.e.f. 1.4.98)

STEPS FOR CALCULATION


Salary means Basic+ DA +Commission based on fixed percentage of
turnover
Average salary :Average of Salary drawn during last 10 months
preceding retirement.
Steps to be taken:
1. Find out average salary = Basic +DA +Com average for last 10
months
2.Completed years of Service : Retirement Date less Joining date take
completed years
3.Leave due Completed years of service x30 days
4. Leave balance : Leave due less leave availed
5. Cash equivalent of leave = average salary x leave balance
Exempt Leave encashment Minimum of ; cash equivalent of leave, Rs. 3
lakh and actual leave salary received

PRACTICAL EXAMPLE
Illustration:
Mr X an employee Siemens Ltd receives Rs.80000/- as
leave salary at the time of his retirement on 28th
Feb,2011.Average salary drawn during last 10 months
Rs.3000/-. His last drawn salary was Rs.3200/-Duration
of his service was 24 years and 7 months. Leave taken
while in service is 9 months. Leave entitlement as per
employers rules is one and half month for every
completed year. Calculate taxable leave for A.Y.2010-12.

SOLUTION

Taxable leave salary of Mr. X:


Leave due
24 months
Leave taken
9 months
Leave balance
15 months
Exempt
Actual Leave salary
80000
Minimum of
-Cash equivalent 3000x15 = 45000(24 years*30 days-9 months*30 days)
-10 months salary 10x3000= 30000
-Specified amt
= 3 lakhs
-Actual leave salary
= 80000 less(-) 30000(exempt)
-Taxable leave salary
= 50000

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