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T. Banusekar

I REFER to the column dated March 9, 2003. I was shocked to see the wrong advice given on the question of leave encashment and superannuation. Leave encashment is exempt from income-tax, and there is no need to postpone the receipt of leave encashment as suggested by the columnist. I hope you will correct the position through this column.

S. P. Gupta

Reply

This strongly worded letter from a reader does not appear to be the correct position in law. Leave encashment is fully exempt in the hands of a Government employee.

However, in the hands of an employee working in a public sector company, the same is taxable subject to the exemption available under Section 10(10AA). It may also be noted that the columnist had not suggested postponement of receipt of leave encashment. It was in fact the reader who had posed the query, who had suggested that the same be postponed so that it may be subject to tax in the next year in so far as the sum exceeds the exempt portion.

The columnist had only commented that the postponement will not make it taxable in the year of receipt but will still be taxable in the year in which it has accrued, for salary is taxable in the year of accrual or receipt, whichever is earlier. It is once again reiterated that in the hands of a non-government employee, leave salary will be taxable in the year of accrual subject to the exemption under Section 10(10AA).

It may also be stated that an employee of a public sector undertaking is not a government employee. The columnist sees no reason to change his opinion already expressed through the column.

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