Retired from PSU Bank: Should Leave Encashment Be Taxed in 2014-15 or 2015-16?

A person retired from an Indian PSU bank on 31.03.2015. He received leave encashment on 08.04.2015. Kindly guide whether the above income shall be added to the income for the year 2014-15 or 2015-16 for the purpose of TDS deduction.

For government employees, it is fully exempt from tax under section 10(10AA)(i).

Pon

Only State and Central government employees are entitled to tax exemption for leave encashment on retirement/superannuation. The definition of "Government Employee" is not specifically given in the IT Act-1961. However, the Act has incorporated PSU employees, government undertaking employees, local authorities employees, etc., in various other sections/clauses of the Income Tax Act-1961, wherein benefits are meant to be conferred to them. The same is not there in Section 10(10AA). Therefore, a PSU bank employee would need to cross-check before working out tax. This is my opinion unless some rule has changed in this context recently.

Dear NATHRAO,

As already stated by you, the said amount is surely taxable after some partial exemption as provided under the Act.

The main concern here is regarding the assessment year in which this income is to be taxed for the purpose of TDS deduction. Kindly suggest in light of the rule that salary income is taxable on the basis of due or received whichever is earlier.

As far as my opinion goes, the year in which LE was actually received was F/Y 2015-16 A/Y 2016-17.

Guidance on Tax Relief for Leave Encashment

A write-up on the subject is attached for your guidance. Of course, there are other circumstances, as discussed under section 10 of the IT Act, under which certain relief will be available, provided the separation is due to termination resulting in a scheme approved by the government on account of the closure of an establishment. But for the present case, the attachment might help to the extent required. The querist should also try for relief under section 89(1) if found beneficial, which requires detailed workings to support your IT returns.

Also, you can learn more from this link: http://www.moneycontrol.com/tax/sala...pt_664846.html

Regards

As far as the specific query of the poster goes, LE is being received on retirement. The concerned person is not a government servant, so no tax exemption beyond a limit. The tax will fall due in the year in which he retired, that is F/Y 15-16, and no relief under Sec 89(1) is admissible in this specific case. However, I advise the poster to cross-check all this information with his tax consultant.

ONGC officer retired and received leave encashment on retirement. The employer deducted Rs. 3 lakhs u/s 10(10AA)(ii), whereas I feel he is entitled to exemption u/s 10(10AA)(i) like any other Central Government servant as ONGC is owned by the Central Government Ministry of Petroleum and Natural Gases. Am I correct?