Salary is taxed on a ‘due’ or ‘receipt’ basis, whichever is previously. As you have actually retired in February 2024, the leave encashment ended up being because of you in February 2024 itself. While area 10( 10AA) of the Income Tax Act, 1961, supplies an exception for ‘payment’ in the direction of leave encashment obtained, one would certainly require to review the exception area in addition to the billing area and, for that reason, the exception to a staff member that has actually retired would certainly be readily available in the year in which such leave encashment resulted from him.
The truths are unclear regarding what is indicated by assent of the leave encashment by the company. However, if the assent is simply in the direction of the calculation and dispensation, the leave encashment ended up being because of you the day you retired and, for that reason, the exception would certainly be readily available in FY 2023-24 itself and not in FY 2024-25, when you obtained the leave encashment. Practically, the company would certainly have likewise thought about such leave encashment in addition to the exception in FY 2023-24 itself and would certainly be shown in your Form 16 for the claimed year. On the various other hand, if contractually the leave encashment is because of you in April 2024, after that you might include it in the earnings and insurance claim exception for FY 2024-25. Practically, the exception would certainly be readily available in the year in which such quantity is thought about for tax objectives by your company.
Further, you might likewise keep in mind that the exception for leave encashment on retired life when it comes to a staff member aside from a staff member of the state or main Government would certainly be calculated as the least of the following:
a) Actual leave encashment obtained
b) 10 months’ income (calculated on the basis of the income attracted 10 months prior to retired life)
Moreover, the leave encashment ought to not go beyond thirty days for every year of solution made by the worker to the company where he has actually retired.
Lastly, leave encashment throughout the duration of solution is constantly taxed and the above exception uses just in instance where the leave encashment is paid on retired life of the worker.
Mahesh Nayak is a legal accounting professional at CNK & & Associates.
–If you have an individual money question, contact us at mintmoney@livemint.com to obtain it addressed by professionals.
