Page 208 - DCOM301_INCOME_TAX_LAWS_I

Unit 7: Income under the Head Salaries

(d) The amount of leave actually received at the time of retirement. Notes
Date of Retirement Amount
(Whether superannuation or otherwise)
Between January 1, 1988 and March 31, 1995 79,920

Between April 1, 1995 and June 30, 1995 1,30,320
Between July 1, 1995 and July 1, 1997 1,35,360
Between July 2, 1997 and April 1, 1998 2,40,000
After April 1, 1998 3,00,000

Example: Mr. P, an employee of a company, receives 7, 75,000 as leave salary at the time
of his retirement on December 31, 2012. Determine the amount of taxable leave salary for the
assessment year 2013–14 from the following information:
Salary at the time of retirement 25,000

Average salary received during last 10 months:
From March 1, 2012 to September 30, 2012 24,000
From October 1, 2012 to December 31, 2012 25,000

Duration of Service 26 years
Leave entitlement for each year of service 1½ months
Leave availed while in service 8 months
Leave at the credit of employee at the time of retirement
(26 × 1.5 – 8) 31 months
Leave salary paid at the time of retirement
(i.e. ` 25,000 x 31) 7, 75,000
Solution:

The amount of exemption under Section 10(10AA) of the Act shall be computed as under:
Leave entitlement @ one month leave for every year of service 26 months
Leave availed while in service 8 months

Leave standing to the credit of the employee at the time of retirement 18 months
Average salary of last 10 months ending on December 31, 2012
[i.e. (` 24,000 x 7 + ` 25,000 x 3) ÷ 10] 24,300
Out of 7, 75,000 received as encashment of leave, the least of the following will be exempt from
tax:
(i) Cash equivalent of leave to the credit of Mr. P at the time of retirement
(i.e. 24,300 × 18) 4,37,400
(ii) 10 month’s average salary (i.e. 24,300 x 10) 2,43,000
(iii) Amount specified by the Government 3,00,000
(iv) Amount received from the employer 7,75,000

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