Blog

Leave encashment refers to an amount of money received in exchange for a period of leave not availed by an employee.

The benefit of accumulated leave can be availed by the employee at the time of retirement, at the time of continuation of service or, leaving the job.

The Idea Of Leave Encashment 

• Each salaried individual according to work law is qualified for a base number of paid leave each year.
• Nonetheless, it isn’t required that an individual representative uses all the leave he is entitled to a year. 
• Truth be told, most managers permit the workers an alternative of conveying forward such unutilized paid leaves.
• This would perpetually leave the worker with a gathered unutilized leave balance of the employee at the hour of retirement or renunciation from the organization. 
• This forces the business to repay the unutilized paid leave of the workers and this idea is otherwise called Leave Encashment. 

Also, read | Section 80C Deduction, 80CCC and 80CCD(1)

Tax Collection From Leave Encashment 

Leave encashment got during the service period

• Aggregated leave can either be encashed during administration or at the hour of retirement or resignation.
• Any leave encashed during administration is completely available and frames part of ‘pay from Salary’. Deduction under Section 89 can be guaranteed ( to this round). 

Leave encashed at the hour of retirement or renunciation 

Received at the time of either retirement or resignation is either completely or somewhat exempt relying on the category that a worker falls under-

• Received by a Central or State Government representative at the time of retirement or resignation is completely exempted.
• Received by legal heirs of a deceased employee is completely exempted. 
• Leave Enchantment Received by Non-Government representative is exempt depending on the calculation given under Section 10(10AA)(ii) and balance sum if any is available as ‘pay from compensation.