Dear Seniors,
We can calculate the Leave encashment in the following manner:
Example:
Monthly Salary - RS. 10,000
No. of leaves to be encashed = 10
One day salary = Rs. (10,000 X 12)/365 = Rs. 1,20,000/365 = Rs. 328.8 = Rs. 329 (approx)
Total Leave encashment = Rs. 329 X 10 = Rs. 3,290/-
Please correct me if wrong anywhere.
Regards,
Sandip Shaw
From India, Kolkata
We can calculate the Leave encashment in the following manner:
Example:
Monthly Salary - RS. 10,000
No. of leaves to be encashed = 10
One day salary = Rs. (10,000 X 12)/365 = Rs. 1,20,000/365 = Rs. 328.8 = Rs. 329 (approx)
Total Leave encashment = Rs. 329 X 10 = Rs. 3,290/-
Please correct me if wrong anywhere.
Regards,
Sandip Shaw
From India, Kolkata
Dear Sirs,
Of all types of leaves only earned or privilege leave is encashable.
$ Usually the basic salary and dearness allowance is taken in consideration for calculation of the amount but Gross salary is also taken for calculation (subject to Organization's standing order).
$ Leave encashment is only for completed years of service. If you have 20 years and 7 months of svice, the calculation would be for 20 years only.
$There is no statutory compulsion to have Leave Encashment Policy. So your employer may or may not have leave encashment at their discretion.
$Government employees can have maximum of 10 months of leave accumulation and hence encashment
** In industrial law provisions of leave encashment is derived from Factories Act and from Shop and commercial establishment Act.
## As per Section 79 of Factories Act 1948,
Provided that the total number of days of leave that may be carried forward to a succeeding year shall not exceed thirty (30) in the case of an adult or forty(40) in the case of a child.
However there has been a recent amendment in 2002 via The Small Enterprises (Employment Relations) Act 2002 which is applicable to whole of India. Under chapter IV - conditions of work, clause no 11 point 4 mentions that A worker shall be permitted to accumulate leave up to 45 days in addition to the leave entitlement of the current year earned on the basis of the work done by him in the previous year and he shall be entitled to encashment of entire accumulated earned leave including leave earned during the current year pro rata in case his services are terminated or he quits the service.
Where as in Shop and Commercial Establishment it is up to 45 days (applicable to each State separately).
$ Leave Encashment is received by the employee at the time of separation or retirement from the employment. The maximum leave encashment exemption limit is up to 3 Lakhs.
$ Leave is calculated for the calendar year January to December.
## How to Calculate Leave Pay and Encashment Payment
Annual leave encashment = (leave days x 12) x (Gross Salary x 12 / 365)
Example:A person gets a salary of Rs.12000 per month and allowed leave days per month is 2. Calculate Leave Encashment Payment.
Employee salary = Rs.12000
Leave Days Per month = 2
Annual leave encashment= (leave days x 12) x (Gross Salary/Basic+D.A x 12 / 365)
= (2 x 12) x (12000 x 12 / 365)
= Rs. 9468.493
## Tax on Leave Encashment:
The tax of leave encashment is dependent on if you are government or private sector employee, or if you are encashing it at the time of retirement or mid-way.
A) At the time of Retirement:
$ Government Employee:The entire amount received as leave encashment is tax free.
$ Non Government Employee:
The leave encashment for private sector employees is stated in Section 10 (10 AA) and is minimum of the following 4 factors:
1.Amount received as leave encashment
2.Maximum cap as stated by government – Rs 3 Lakhs after 02.04.1998
3.Last 10 months average basic salary & dearness allowance before leaving the job
4.Cash equivalent of the leave balance, subject to maximum of 30 days for each completed year of service
For Example: A person is a non-government employee who receives Rs 6 lakh as her leave encashment at the time of retirement. She worked here for 25 years and was eligible for 45 earned leaves every year.
Below is the calculation:
No. Of earned leaves person was eligible for = 45 X 25 = 1,125 days
He/she used 585 leaves over her service period
Leaves eligible for leave encashment = 1125 – 585 = 540 days (18 months)
Average last 10 months basic + dearness allowance = Rs 25,000
Tax Calculation:
The tax exemption would be minimum of the below 4 points:
1.Amount received as leave encashment – Rs 6 Lakhs
2.Maximum cap as stated by government – Rs 3 Lakhs
3.Last 10 months average basic salary & dearness allowance before leaving the job – Rs 2,50,000 (Rs 25000 X 10)
4.Cash equivalent of the leave balance, subject to maximum of 30 days for each completed year of service – Rs 1,37,500
Earned leave eligibility as per above rule = 30 days X 25 = 750 days
Leaves used = 585 days
Leaves eligible for encashment (as per above rule) = 750 – 585 = 165 days (5.5 months)
Cash equivalent = 5.5 X 25000 = Rs 1,37,500
Tax exemption = Rs 1, 37,500
Taxable component = Rs 6, 00,000 – Rs 1, 37,500 = Rs 4, 62,500
Post tax deduction the leave encashment would vary from Rs 3.2 lakh (in the 30% tax slab) to Rs 4.15 lakh (in 10% tax slab)
**The leave encashment is tax free for the government employee and the calculation is same as above for non-government employees.
However the limit of Rs 3 lakh for non-government employee is for the entire lifetime.
In case you already got Rs 1 lakh while leaving your job, going forward you can only have Rs 2 lakhs as tax exempted leave encashment.
B) Leave encashment while in Service
If you encash leaves partially or fully while in service the income from encashment is fully taxable for both government and non-government employee.
C) Leave encashment on Death
The leave encashment is tax free when paid to the nominees or legal heirs at the death of employee.
Note: It is not necessary that the workers in the Factories be given only earned leave. Certain factories also design their own leave policies which also include Casual Leave and Sick Leave whereby extending better welfare facility to its employees.
Regards,
Amit
From India, Delhi
139Of all types of leaves only earned or privilege leave is encashable.
$ Usually the basic salary and dearness allowance is taken in consideration for calculation of the amount but Gross salary is also taken for calculation (subject to Organization's standing order).
$ Leave encashment is only for completed years of service. If you have 20 years and 7 months of svice, the calculation would be for 20 years only.
$There is no statutory compulsion to have Leave Encashment Policy. So your employer may or may not have leave encashment at their discretion.
$Government employees can have maximum of 10 months of leave accumulation and hence encashment
** In industrial law provisions of leave encashment is derived from Factories Act and from Shop and commercial establishment Act.
## As per Section 79 of Factories Act 1948,
Provided that the total number of days of leave that may be carried forward to a succeeding year shall not exceed thirty (30) in the case of an adult or forty(40) in the case of a child.
However there has been a recent amendment in 2002 via The Small Enterprises (Employment Relations) Act 2002 which is applicable to whole of India. Under chapter IV - conditions of work, clause no 11 point 4 mentions that A worker shall be permitted to accumulate leave up to 45 days in addition to the leave entitlement of the current year earned on the basis of the work done by him in the previous year and he shall be entitled to encashment of entire accumulated earned leave including leave earned during the current year pro rata in case his services are terminated or he quits the service.
Where as in Shop and Commercial Establishment it is up to 45 days (applicable to each State separately).
$ Leave Encashment is received by the employee at the time of separation or retirement from the employment. The maximum leave encashment exemption limit is up to 3 Lakhs.
$ Leave is calculated for the calendar year January to December.
## How to Calculate Leave Pay and Encashment Payment
Annual leave encashment = (leave days x 12) x (Gross Salary x 12 / 365)
Example:A person gets a salary of Rs.12000 per month and allowed leave days per month is 2. Calculate Leave Encashment Payment.
Employee salary = Rs.12000
Leave Days Per month = 2
Annual leave encashment= (leave days x 12) x (Gross Salary/Basic+D.A x 12 / 365)
= (2 x 12) x (12000 x 12 / 365)
= Rs. 9468.493
## Tax on Leave Encashment:
The tax of leave encashment is dependent on if you are government or private sector employee, or if you are encashing it at the time of retirement or mid-way.
A) At the time of Retirement:
$ Government Employee:The entire amount received as leave encashment is tax free.
$ Non Government Employee:
The leave encashment for private sector employees is stated in Section 10 (10 AA) and is minimum of the following 4 factors:
1.Amount received as leave encashment
2.Maximum cap as stated by government – Rs 3 Lakhs after 02.04.1998
3.Last 10 months average basic salary & dearness allowance before leaving the job
4.Cash equivalent of the leave balance, subject to maximum of 30 days for each completed year of service
For Example: A person is a non-government employee who receives Rs 6 lakh as her leave encashment at the time of retirement. She worked here for 25 years and was eligible for 45 earned leaves every year.
Below is the calculation:
No. Of earned leaves person was eligible for = 45 X 25 = 1,125 days
He/she used 585 leaves over her service period
Leaves eligible for leave encashment = 1125 – 585 = 540 days (18 months)
Average last 10 months basic + dearness allowance = Rs 25,000
Tax Calculation:
The tax exemption would be minimum of the below 4 points:
1.Amount received as leave encashment – Rs 6 Lakhs
2.Maximum cap as stated by government – Rs 3 Lakhs
3.Last 10 months average basic salary & dearness allowance before leaving the job – Rs 2,50,000 (Rs 25000 X 10)
4.Cash equivalent of the leave balance, subject to maximum of 30 days for each completed year of service – Rs 1,37,500
Earned leave eligibility as per above rule = 30 days X 25 = 750 days
Leaves used = 585 days
Leaves eligible for encashment (as per above rule) = 750 – 585 = 165 days (5.5 months)
Cash equivalent = 5.5 X 25000 = Rs 1,37,500
Tax exemption = Rs 1, 37,500
Taxable component = Rs 6, 00,000 – Rs 1, 37,500 = Rs 4, 62,500
Post tax deduction the leave encashment would vary from Rs 3.2 lakh (in the 30% tax slab) to Rs 4.15 lakh (in 10% tax slab)
**The leave encashment is tax free for the government employee and the calculation is same as above for non-government employees.
However the limit of Rs 3 lakh for non-government employee is for the entire lifetime.
In case you already got Rs 1 lakh while leaving your job, going forward you can only have Rs 2 lakhs as tax exempted leave encashment.
B) Leave encashment while in Service
If you encash leaves partially or fully while in service the income from encashment is fully taxable for both government and non-government employee.
C) Leave encashment on Death
The leave encashment is tax free when paid to the nominees or legal heirs at the death of employee.
Note: It is not necessary that the workers in the Factories be given only earned leave. Certain factories also design their own leave policies which also include Casual Leave and Sick Leave whereby extending better welfare facility to its employees.
Regards,
Amit
From India, Delhi
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