Many companies have policies to encourage employees and for their welfare. Leave encashment is one of the privileges given to employees. Let us discuss about leave encashment, the tax computation and exemptions allowed for leave encashment.
Many organizations offer medical leaves, casual leaves, gazetted leaves every year to every employee. In case, the employee fails to avail those benefits of leaves, such leaves can be carried forward to the next year. The employee has an option to encash such leaves and earn his salary based on how many days he/she is willing to encash. The policy of encashing their leaves is called leave encashment.
The authorities who are competent to sanction leaves to the employees shall be the sanctioning authority for approving encashment of leave.
Encashment of half-pay leave will be allowed, provided it’s must be his/her superannuation or voluntary retirement. Such encashment will be provided only if the employee serves for 20 years continuously.
Such encashment amount received by the employees is taxable under the head “Income from Salary.” However, at the time of filing tax returns, there are few exemptions allowed from the amount received as leave encashment.
To know how to utilize the tax saving options available to you and for better tax saving and planning options, consult your personal tax expert at H&R Block India