Tax relief admissible on leave encashment arrears
Q: I retired from BSNL on March 31, 2007. In the financial year 2008-09, I received leave encashment arrears, commutation arrears and pension income.
In ITR Form I, will the amount of leave encashment arrears and commutationarrears be exempt?
According to my CA, these would not be exempt but since these are part of my earlier benefits, I feel that these will be exempt.
I want to know that in future if I received these arrears, then will it be exempt. Also I have no proof from my employer that it is exempt.
— Desilva, Kurukshetra
A: Your queries are replied hereunder:
(i) Any payment received by an employee as a cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation, is exempt from tax under the provisions of the Act in case the amount of such encashed leave does not exceed the amount for 10 month leave calculated on the basis of the average salary drawn by the employee for the period of 10 months immediately preceding the retirement. Therefore, in case the amount of leave encashment is within the permissible limit, the same will be exempt from the leviability of tax.
(ii) Any payment in commutation of pension received under any scheme of the employer to the extent it does not exceed (a) in case where the employee receives any gratuity, the commuted value of one third pension which the employee is normally entitled to receive and (b) in any other case, the commuted value of one-half of such pension would be exempt from tax. In case the commuted pension in your case is within the above norms the same would be exempt from tax.
iii) There is no other supporting document required except the salary certificate, which should indicate the aforesaid facts by way of an annexure to such certificate.
Q: I retired from BSNL on March 31, 2007. In the financial year 2008-09, I received leave encashment arrears, commutation arrears and pension income.
In ITR Form I, will the amount of leave encashment arrears and commutationarrears be exempt?
According to my CA, these would not be exempt but since these are part of my earlier benefits, I feel that these will be exempt.
I want to know that in future if I received these arrears, then will it be exempt. Also I have no proof from my employer that it is exempt.
— Desilva, Kurukshetra
A: Your queries are replied hereunder:
(i) Any payment received by an employee as a cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation, is exempt from tax under the provisions of the Act in case the amount of such encashed leave does not exceed the amount for 10 month leave calculated on the basis of the average salary drawn by the employee for the period of 10 months immediately preceding the retirement. Therefore, in case the amount of leave encashment is within the permissible limit, the same will be exempt from the leviability of tax.
(ii) Any payment in commutation of pension received under any scheme of the employer to the extent it does not exceed (a) in case where the employee receives any gratuity, the commuted value of one third pension which the employee is normally entitled to receive and (b) in any other case, the commuted value of one-half of such pension would be exempt from tax. In case the commuted pension in your case is within the above norms the same would be exempt from tax.
iii) There is no other supporting document required except the salary certificate, which should indicate the aforesaid facts by way of an annexure to such certificate.
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