Are Leave Encashment, Gratuity, and Salary Revisions Taxable and Retroactive After Leaving a Job?

Dear All,

Can anybody tell me whether the leave encashment, gratuity, and service weightage are covered under income tax or not? If yes, are there any conditions?

Secondly, is any employee entitled to an increase in salary revision after leaving an organization? The person left on 30th July; the hike in salary was supposed to be declared by the end of July but could not be due to some organizational reasons. The revision came in at the end of September but was effective from 1st July onwards. Is he entitled? If yes, then July salary, gratuity, and service weightage need to be calculated again, and arrears of salary, gratuity... should be paid or not?

Request comments in this regard.

Regards,
pksagar

If the settlement does not confine the revision only to the employees existing in service as of the date of settlement, then the left employee will be eligible to receive it as arrears. Accordingly, the gratuity has to be reworked, and the difference paid.

Leave encashment is subject to income tax deduction like any other component of salary, whereas gratuity, subject to a maximum as provided in the Payment of Gratuity Act (Rs 10 lakhs), is not taxable. Any amount paid over and above it will be subject to tax.

Regards,
Madhu.T.K

Thank you, Madhu Ji, for your comments. The first part is not clear to me. Please elaborate. What is legally correct?

In settlements, it may be mentioned that "this settlement is applicable to those employees who are on the roll as of the date of settlement." If that is the case, even though the settlement will have a retrospective effect (say from July 2010), the same will not cover the employees who have left the service before the settlement becomes effective (say in Oct).

On the other hand, if it is silent but only states that it will have a retrospective effect from July, then the employees who have left will be eligible for arrears and other benefits offered in the settlement.

Regards,
Madhu.T.K