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Defined Benefit Plans

LEAVE ENCASHMENT
Different types of leaves that an employee
    may have :

a. Casual Leave
b. Sick Leave
c. Privilege Leave
          g
Casual Leave
For casual or Emergency purposes
To be used within year
No
N carry fforward
               d
No accumulation
Sick Leave
For sickness purposes
Carry forward
Accumulation generally allowed as per
A       l ti        ll ll    d
service rules
Privileged Leave
1.
1 For general purposes
               purposes.
1. It can be carry forwarded and
  accumulated during service as per service
  rules.
2. is non- t t t
2 It i non-statutory bbenefit t employees
                          fit to   l
  on exit from service
Taxation
ENCASHMENT DURING THE COURSE of
 EMPLOYMENT

1. Is fully taxable
Taxation
Encashment of accumulated leave at the
   time of retirement Section 10(10AA)(i)


a.   Is fully exempt for only Central and
     State government employees
                             l
Taxation
b. OTHER EMPLOYEES Section 10(10AA)(ii)
    LEAVE ENCASHMENT is exempt minimum of
    the following :
1. Leave Encashment actually received
1
2. 10 * Avg salary of last 10 months
3. Rs 300000
3   Rs.300000
4. Cash equivalent of un-availed leave calculated
                       un-
    on the basis of maximum 30 days leave for
    every completed year
SALARY = Basic Pay + D. A forming part of
                      D A.
        retirement benefit + Commission
       based upon fixed % of the turnover
Average salary
Average of the salary drawn by the
 employee during the period of
10 months immediately preceding the
 retirement.
LEAVE SALARY paid to legal heirs of a
  deceased employee is
not liable to tax.
              tax.
Concept Ch k
C     t Checkers
1 If earned leave credited to Rohit’s a/c is
1.                            Rohit s
  40 days per year, what will be the
  maximum permissible un-availed leave
                        un-
  under the income tax act, 1961 if he
  served for 26 years?
Ans. 26*30
Ans 26 30 = 780
Q2 If earned leave credited to Mohit’s a/c is
Q2.                            Mohit s
 24 days per year, what will be the
 maximum permissible un-availed leave
                       un-
 under the income tax act, 1961 if he
 served for 30 years?
Ans. 24*30
Ans 24 30 =720
Q3. Mr. X joined on 1st December 1980 in
Q3 Mr
 XYZ Ltd. and retired on 1st December
 2002.
 2002 He got leave encashment of
 Rs.415000. His last drawn salary is
 Rs.40000.His
 Rs 40000 His last 10 months salary is 3.5
                                        35
 lacs. He availed 160 leave during the
 service.
 service What will be his taxable leave
 salary amount?
Ans.
Ans 115000
Least of four is exempted
i. A t ll received i.e. 415000
     Actually     i di
ii. 300000
iii. 10*(350000/10) * = 350000
iv. (22 30 160)/30
iv (22*30-160)/30 * 35000 = 583333.333
                             583333 333
Taxable ( 415000 – 300000 ) = 115000
Q4. Mr
Q4 Mr. Y joined on 1st January 1985 in XYZ
 Ltd. and retired on 1st August 2008. He
 got leave encashment of Rs 315000 His
                           Rs.315000.
 last drawn salary is Rs.22000.His last 10
 months average salary is 25500. He
                           25500
 availed 340 leave during the service. What
 will be his tax-exempted leave salary
             tax-
 amount?
Ans.
Ans 297500
Sol. Least of four is exempted
i. 315000
ii. 300000
iii. 10*25500=255000
iv. (23 30 340)/30 25500=297500
iv (23*30-340)/30 *25500=297500
Q5. Mr. X joined on 1 1 91 and retires on
                     1-1-91
 1/1/08.
He got amount of Rs.36000 as leave
 encashment salary against 150 days of
 unavailed leave. His employer provides 40
                          p y p
 days leave for each year of service.
How much amount of leave salary would be
                                  y
 tax free if his Average salary for the last
 10 months is Rs.8000
Ans. Nil
Sol least of four is exempted
i. 36000
i
ii. 300000
iii 10*8000
iii.
iv. 0/30 * 8000
     Max permissible leave 17*30=510
Leave taken (17*40-150) = 530
Q6
Q6. Mr. X putting service 12 y s During se ce he
           putt g se ce      yrs. u g service e
  availed 4 months leave and had 250 days un-
  availed leave at credit.
His
Hi employer pays encashment benefit on the last
        l                 h     b   fi    h l
  drawn salary on surrendering of un-availed leave
  up to 12 months.
The employee’s terminal salary was Rs.46000 and
  Avg salary was Rs.45000 p.m. What was the
  amount of leave salary paid to him by the
  employer?
Sol.
Sol 250/30 * 46000 = 383333.3333
                     383333 3333
Q
Q7. Mr. A was employed with ABC Ltd. He retired
                   p y
  w.e.f. 1-2-2008 after completing a service of 25
         1-
  years and 8 months. He submits the following
  information :
  i f      i
Basic Salary      Rs.15000 p.m. at retirement
D.A.              100% of basic (40% of
                  which forms part of salary of
                  retirement benefits)
He was entitled to 40 days leave for every year of
  service.
  service He received leave encashment
  amounting to Rs.60000 on account of 280 days
  leave. Calculate taxable amount.
Ans. (60000 000) = 39000
    s (60000-21000)
Sol. Least of four is exempted
i.   60000
ii.  300000
iii. 10*(15000+15000*.4)=210000
iv. 30/30*21000=21000
Max permissible leave as per act =25*30
                                    = 750
Leave already taken (25*40-280) = 720
Q8. Mr. X had been working with AAA Ltd. in a
  tribal area since 01-12-1996.
                    01-12-
Basic Salary y     Rs.8000 p.m. at retirement
                           p
D.A. 40% of Basic (50% of which forms part
      of salary for retirement benefits)
              y                        )
2% commission on turnover Rs.500000 at the end
  of year.
He retires on 15-1-2009. He receives Rs.250000 of
               15-
  accumulated leave of 235 days. He was entitled
  to 35 days leave for every year of service.
Calculated taxable amount?
Ans. (250000-60861.1) = 189138.9
      (                 )
Sol. Least of four is exempted
i.   250000
ii.  300000
iii. 10*10433.333=104333.333
iv.  175/30 10433.333 60861.1
     175/30*10433.333=60861.1
Avg salary = (8000+8000*.4*.5+500000*.02/12)=
     10433.333
Max permissible leave = 12*30=360
                          12*30 360
Availed leave during employment(12*35-235) = 185
Encashable leave 360-185 = 175
Q9. Mr. y retires on March 10, 2008 from a private
  sector company after rendering 39 years of
      t             ft      d i                f
  service. According to the service rules he is
  entitled for 26 days leave for each year of
  completed service. During his service he has
         l d      i    D i hi         i h h
  availed and encashed his leave of 120 days and
  160 days respectively. Basic and D.A. (forming
          y     p       y                (       g
  part of retirement benefit) Paid to Mr. y as
  follows :
       Period                 basic p.m.
                                    pm       D.A
                                             DA
1-4-07 to 31-11-07
           31-11-              6000          1200
1-12-07 to 10-03-08
  12-       10-03-             8000          1400
At retirement he got leave encashment Rs.258000
Find the leave salary chargeable to Tax.
Q10. Mr. Ram retires on May 20, 2008 from a
  private sector company after rendering 32 years
  of service. According to the service rules he is
  entitled for 36 days leave for each year of
  completed service. During his service he has
  availed and encashed his leave of 100 days and
  150 days respectively Salary and D A
             respectively.           D.A.
(forming part of retirement benefits) Paid to Mr.
  Ram as follows :
     Period                 basic p.m.     D.A
1-4-07 to 31-12-07
           31-12-            5000        1000
1-1-08 to 20-08-08
        t 20-08-             6000        1200
At retirement he got leave encashment Rs.218000
Find the leave salary chargeable to Tax
                                    Tax.

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Leave encashment

  • 2. Different types of leaves that an employee may have : a. Casual Leave b. Sick Leave c. Privilege Leave g
  • 3. Casual Leave For casual or Emergency purposes To be used within year No N carry fforward d No accumulation
  • 4. Sick Leave For sickness purposes Carry forward Accumulation generally allowed as per A l ti ll ll d service rules
  • 5. Privileged Leave 1. 1 For general purposes purposes. 1. It can be carry forwarded and accumulated during service as per service rules. 2. is non- t t t 2 It i non-statutory bbenefit t employees fit to l on exit from service
  • 6. Taxation ENCASHMENT DURING THE COURSE of EMPLOYMENT 1. Is fully taxable
  • 7. Taxation Encashment of accumulated leave at the time of retirement Section 10(10AA)(i) a. Is fully exempt for only Central and State government employees l
  • 8. Taxation b. OTHER EMPLOYEES Section 10(10AA)(ii) LEAVE ENCASHMENT is exempt minimum of the following : 1. Leave Encashment actually received 1 2. 10 * Avg salary of last 10 months 3. Rs 300000 3 Rs.300000 4. Cash equivalent of un-availed leave calculated un- on the basis of maximum 30 days leave for every completed year
  • 9. SALARY = Basic Pay + D. A forming part of D A. retirement benefit + Commission based upon fixed % of the turnover
  • 10. Average salary Average of the salary drawn by the employee during the period of 10 months immediately preceding the retirement.
  • 11. LEAVE SALARY paid to legal heirs of a deceased employee is not liable to tax. tax.
  • 12. Concept Ch k C t Checkers
  • 13. 1 If earned leave credited to Rohit’s a/c is 1. Rohit s 40 days per year, what will be the maximum permissible un-availed leave un- under the income tax act, 1961 if he served for 26 years?
  • 14. Ans. 26*30 Ans 26 30 = 780
  • 15. Q2 If earned leave credited to Mohit’s a/c is Q2. Mohit s 24 days per year, what will be the maximum permissible un-availed leave un- under the income tax act, 1961 if he served for 30 years?
  • 16. Ans. 24*30 Ans 24 30 =720
  • 17. Q3. Mr. X joined on 1st December 1980 in Q3 Mr XYZ Ltd. and retired on 1st December 2002. 2002 He got leave encashment of Rs.415000. His last drawn salary is Rs.40000.His Rs 40000 His last 10 months salary is 3.5 35 lacs. He availed 160 leave during the service. service What will be his taxable leave salary amount?
  • 18. Ans. Ans 115000 Least of four is exempted i. A t ll received i.e. 415000 Actually i di ii. 300000 iii. 10*(350000/10) * = 350000 iv. (22 30 160)/30 iv (22*30-160)/30 * 35000 = 583333.333 583333 333 Taxable ( 415000 – 300000 ) = 115000
  • 19. Q4. Mr Q4 Mr. Y joined on 1st January 1985 in XYZ Ltd. and retired on 1st August 2008. He got leave encashment of Rs 315000 His Rs.315000. last drawn salary is Rs.22000.His last 10 months average salary is 25500. He 25500 availed 340 leave during the service. What will be his tax-exempted leave salary tax- amount?
  • 20. Ans. Ans 297500 Sol. Least of four is exempted i. 315000 ii. 300000 iii. 10*25500=255000 iv. (23 30 340)/30 25500=297500 iv (23*30-340)/30 *25500=297500
  • 21. Q5. Mr. X joined on 1 1 91 and retires on 1-1-91 1/1/08. He got amount of Rs.36000 as leave encashment salary against 150 days of unavailed leave. His employer provides 40 p y p days leave for each year of service. How much amount of leave salary would be y tax free if his Average salary for the last 10 months is Rs.8000
  • 22. Ans. Nil Sol least of four is exempted i. 36000 i ii. 300000 iii 10*8000 iii. iv. 0/30 * 8000 Max permissible leave 17*30=510 Leave taken (17*40-150) = 530
  • 23. Q6 Q6. Mr. X putting service 12 y s During se ce he putt g se ce yrs. u g service e availed 4 months leave and had 250 days un- availed leave at credit. His Hi employer pays encashment benefit on the last l h b fi h l drawn salary on surrendering of un-availed leave up to 12 months. The employee’s terminal salary was Rs.46000 and Avg salary was Rs.45000 p.m. What was the amount of leave salary paid to him by the employer?
  • 24. Sol. Sol 250/30 * 46000 = 383333.3333 383333 3333
  • 25. Q Q7. Mr. A was employed with ABC Ltd. He retired p y w.e.f. 1-2-2008 after completing a service of 25 1- years and 8 months. He submits the following information : i f i Basic Salary Rs.15000 p.m. at retirement D.A. 100% of basic (40% of which forms part of salary of retirement benefits) He was entitled to 40 days leave for every year of service. service He received leave encashment amounting to Rs.60000 on account of 280 days leave. Calculate taxable amount.
  • 26. Ans. (60000 000) = 39000 s (60000-21000) Sol. Least of four is exempted i. 60000 ii. 300000 iii. 10*(15000+15000*.4)=210000 iv. 30/30*21000=21000 Max permissible leave as per act =25*30 = 750 Leave already taken (25*40-280) = 720
  • 27. Q8. Mr. X had been working with AAA Ltd. in a tribal area since 01-12-1996. 01-12- Basic Salary y Rs.8000 p.m. at retirement p D.A. 40% of Basic (50% of which forms part of salary for retirement benefits) y ) 2% commission on turnover Rs.500000 at the end of year. He retires on 15-1-2009. He receives Rs.250000 of 15- accumulated leave of 235 days. He was entitled to 35 days leave for every year of service. Calculated taxable amount?
  • 28. Ans. (250000-60861.1) = 189138.9 ( ) Sol. Least of four is exempted i. 250000 ii. 300000 iii. 10*10433.333=104333.333 iv. 175/30 10433.333 60861.1 175/30*10433.333=60861.1 Avg salary = (8000+8000*.4*.5+500000*.02/12)= 10433.333 Max permissible leave = 12*30=360 12*30 360 Availed leave during employment(12*35-235) = 185 Encashable leave 360-185 = 175
  • 29. Q9. Mr. y retires on March 10, 2008 from a private sector company after rendering 39 years of t ft d i f service. According to the service rules he is entitled for 26 days leave for each year of completed service. During his service he has l d i D i hi i h h availed and encashed his leave of 120 days and 160 days respectively. Basic and D.A. (forming y p y ( g part of retirement benefit) Paid to Mr. y as follows : Period basic p.m. pm D.A DA 1-4-07 to 31-11-07 31-11- 6000 1200 1-12-07 to 10-03-08 12- 10-03- 8000 1400 At retirement he got leave encashment Rs.258000 Find the leave salary chargeable to Tax.
  • 30. Q10. Mr. Ram retires on May 20, 2008 from a private sector company after rendering 32 years of service. According to the service rules he is entitled for 36 days leave for each year of completed service. During his service he has availed and encashed his leave of 100 days and 150 days respectively Salary and D A respectively. D.A. (forming part of retirement benefits) Paid to Mr. Ram as follows : Period basic p.m. D.A 1-4-07 to 31-12-07 31-12- 5000 1000 1-1-08 to 20-08-08 t 20-08- 6000 1200 At retirement he got leave encashment Rs.218000 Find the leave salary chargeable to Tax Tax.