|Question And Answer|
|Subject:||Exemption of Leave Salary Encashment received by Govt. and Non-Govt Employees.|
|Querist:||CA Arun Kumar Arora|
|Answered by:||Research Team|
|Tags:||Exemption, leave encashment, leave salary, salary|
|Date:||November 12, 2021|
In the case of non-government employees, the exemption under section 10(10AA)(ii) is to be determined with reference to the leave to their credit at the time of retirement on superannuation, or otherwise, subject to a maximum of cash equivalent of leave salary of ten months’ leave calculated on the basis of average salary drawn during the 10 months immediately preceding his retirement. The entitlement of earned leave cannot exceed 30 days for every year of actual service rendered. This exemption is to be further limited to the maximum amount specified by the Government of India.
The maximum limit of exemption is not specified in the sub-clause. Instead, it is provided that the limit may be specified by the Central Government by way of notification in the Official Gazette, having regard to the limit applicable to the Central Government employees.
The government vide Notification No. 123/2002 in S.O. 588(E), dated 31-5-2002 specified the limit of Rs. 3,00,000 under section 10(10AA)(ii) in relation to such employees who retire, whether on superannuation or otherwise, after 1-4-1998.Thereafter no notification has so far been issued in this regard.
Whether employees of Nationalised Banks and Public Sector Undertakings are Government Employees or Non-Government Employees. And Leave Salary Encashment received by them is fully exempt or exempt upto specified Limit.
Please refer Kamal Kumar Kalia v. UOI (2020) 268 Taxman 398 / 187 DTR 433 / 313 CTR 779 (Delhi) (HC) the Court held that retired employees of PSUs and nationalised bank cannot be treated as Government employees. Not entitled to get full tax exemption on leave encashment after retirement/superannuation. In KPTCL v. ITO (2018) 170 ITD 587 (Bang.)(Trib.) held that employees of statutory corporations cannot be regarded as employees of State or Central Government and exemption is not available. Please read the judgements .