AIBOC issued its circular No. 88 dated 29.09.2011 on exemption of encashment of leave at the time of retirement under Income Tax. We are reproducing the same here for our readers.
CIRCULAR NO. 88 DATE: 29.09.2011
To, All Affiliates /Members
EXEMPTION OF ENCASHMENT OF LEAVE AT THE TIME OF RETIREMENT UNDER INCOME TAX
The present ceiling for exemption of Income Tax of Rs.3,00,000/- towards encashment of leave at the time of retirement is too meagre and the ceiling was revised in 1998. Hence, there is an urgent need for upward revision in the ceiling and we have addressed a letter to the Minister of Finance, Government of India, Chairman, Central Board for Direct Taxes urging upon them to revise the ceiling or remove the ceiling as is done in the case of the Central /State Government employees.
We have addressed a letter to IBA also urging upon them to take up the matter with the Ministry of Finance Government of India and the Central Board for Direct Taxes, to revise the ceiling upward to reduce hardship to the officers at the time of retirement.
We have annexed a copy of the letter which is self –explicit.
Further developments will be informed to you.
With greetings
Sd/-
(G.D. NADAF)
GENERAL SECRETARY
No.1410/325/11 28.09.2011
To,
Sri. Pranab Kumar Mukherjee,
Hon’ble Finance Minister,
Government of India,
South Block, Parliament House,
New Delhi.
Respected Sir,
EXEMPTION OF ENCASHMENT OF LEAVE AT THE TIME OF RETIREMENT UNDER INCOME TAX ACT
We invite your kind attention to Section 10(10AA) (ii) of Income Tax Act, wherein, in the case of a Non-Government Employees (i.e, an employee other than an employee of the Central Government or a State Government) leave salary is exempted from tax to the extent of the least of the following:
Ø Cash equivalent of the leave salary in respect of the period of earned leave to the credit of an employee only at the time of retirement whether on superannuation or otherwise (earned leave entitlement cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired).
Or
Ø 10 months average salary.
Or
Ø The amount not chargeable to tax as specified by the Government.
Or
Ø Leave encashment actually received at the time of retirement.
“Average Salary” for the aforesaid purpose is to be calculated on the basis of average salary drawn during the period of 10 months immediately preceding the retirement/superannuation (meaning of ‘salary’ for this purpose is, salary last drawn by the employee and includes dearness allowance but does not include any bonus, commission, house rent allowance etc.)
It may please be noted that, the maximum amount not chargeable to tax as specified by the Government was revised to Rs. 3,00,000/- w.e.f 02.04.1998.
In Banking Industry, there was Salary Revision on two occasions i.e., on 01.11.2002 and 01.11.2007. With the salary revision and also spiraling inflation, the present exemption limt of Rs. 3,00,000/- is too meager and most of the officers are paying heavy tax on the encashment of leave salary on the eve of their retirement from the service of the Bank. This has been making a dent on the corpus on hand during the twilight years of the retirees.
Therefore, there is a genuine need for upward revision in the maximum amount not chargeable to tax on account of leave encashment.
It is pertinent to note here that the employees of Central Government or State Government are now fully exempt from payment of tax on encashment of leave to his credit at the time of retirement/superannuation. This total exemption may also be permitted to the officers/employees working in the Banking Industry.
We request you to bestow your personal attention to this important issue and provide relief to the Bank Officers’/employees by either exempting the full amount of leave encashment from tax or enhancing the exemption limit substantially to provide relief to the Officers/employees in the Banking Industry at the time of retirement/on superannuation.
Thanking you sir,
Yours faithfully,
SD/-
(G. D. NADAF)
GENERAL SECRETARY
No./1410/327/11 29.09.2011
To,
The Chairman,
Central Board for Direct Taxes,
Dept. of Revenue,
No.402/88/14/2006-CIT (C&S)
Ministry of Finance, Government of India,
North Block, New Delhi – 110 001.
Dear Sir,
TAX EXEMPTION LIMIT FOR LEAVE ENCASHMENT AT THE TIME OF RETIREMENT UNDER INCOME TAX ACT – NEED TO ENHANCE THE EXEMPTION LIMIT
We draw your kind attention to section 10 (10AA) (ii) of Income Tax Act, where, in the case of non-government employees (i.e., employees other than the Employees of Central Government or a State Government), leave salary in respect of the earned leave to his/her credit at the time of retirement/superannuation, is exempt from Income Tax to the extent of the least of the following:
Ø Cash equivalent of the leave salary in respect of the period of earned leave to the credit of an employee only at the time of retirement whether on superannuation or otherwise (earned leave entitlement cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired),
Or
Ø 10 months average salary.
Or
Ø the amount not chargeable to tax as specified by the Government.
Or
Ø Leave encashment actually received at the time of retirement.
You are aware of the fact that the maximum amount not chargeable to tax, as specified by the Government in respect of the category of employees was revised to Rs. 3,00,000/- w.e.f 02.04.1998. There is no upward revision for the last 13 years. In the meanwhile, in the Banking Industry there was salary revision on two occasions i.e., on 01.11.2002 and 01.11.2007. With the improvement in Salary and also spiraling inflation, the present exemption limit of Rs. 3,00,000/- is too meager and most of the officers are paying heavy tax on the encashment of leave salary on the eve of their retirement from the service of the Bank. This has been causing great hardship to the Bank Officers as a large chunk of encashment of leave salary is shelled down as tax thus rendering the officers benefit of good corpus on hand to take care of the well-being of the retirees during their sunset years.
You are also aware of the fact that the employees of Central Government or State Government are now fully exempt from payment of tax irrespective of the quantum of money received by them on account of leave encashment. This amounts to discrimination under Article 14 of the Constitution of India.
Therefore, there is a genuine need for upward revision in the maximum amount not chargeable to tax on account of leave encashment.
We request you to bestow your personal attention to this important issue and to arrange to take up the matter with the Government of India to provide relief to the Bank Officers’/Employees by either exempting the full amount of leave encashement from tax or enhancing the exemption limit substantially and provde relief to the officers/employees in the Banking Industry, at the time of retirement or on superannuation.
We request you to render justice to the Bank Officers by considering positively our above suggestions.
Thanking you,
Yours faithfully,
SD/-
(G. D. NADAF)
GENERAL SECRETARY
No./1452/328/11 29.09.2011
To,
The Chairman,
The Indian Banks’ Association,
World Trade Centre Complex,
Centre 1, 6th Floor, Cuffe Parade,
MUMBAI – 400 005.
Dear Sir,
TAX EXEMPTION LIMIT FOR LEAVE ENCASHMENT AT THE TIME OF RETIREMENT UNDER INCOME TAX ACT - NEED TO ENHANCE THE LIMIT
The amount of leave encashment at the time of retirement/superannuation of officers working in the Banking Industry is exempt to the extent of Rs. 3,00,000/- and this is in vogue from 02.04.1998, subject to least of the following vide Section 10(10AA) (ii) of Income Tax Act.
Ø Cash equivalent of the leave salary in respect of the period of earned leave to the credit of an employee only at the time of retirement whether on superannuation or otherwise (earned leave entitlement cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired).
Or
Ø 10 months average salary.
Or
Ø The amount not chargeable to tax as specified by the Government.
Or
Ø Leave encashment actually received at the time of retirement.
In the Banking Industry, there was salary revision on three occasions i.e., on 01.11.1997, 01.11.2002 and 01.11.2007, after the revision in the exemption limit w.e.f 02.04.1998. With the Salary Revision and also increasing inflation, the exemption limit decided by the Income Tax Department is arbitrary and shorn of the ground realities. The present exemption limit of Rs. 3,00,000/- is too meager and most of the officers are paying heavy tax on the encashment of leave salary on the eve of their retirement/superannuation from the service of the Bank. This has been affecting the corpus on hand at the time of retirement, depriving the retirees the cushion of good money in hand during the sunset years of their lives.
It may please be noted that the employees of the Central Government or State Government are fully exempt from payment of tax on encashment of leave to his/her credit at the time of retirement/superannuation. This amounts to discrimination under Article 14 of the Constitution of India.
Therefore, there is a genuine need for either exempting the full amount of leave encashment or upward revision in the maximum amount not chargeable to tax.
We request you to take up the issue with the Ministry of Finance as well as the Central Board for Direct Taxes and bring relief to the Bank Officers who are subjected to discriminatory treatment.
Please keep us informed of the further developments.
Thanking you,
Yours faithfully,
SD/-
(G. D. NADAF)
GENERAL SECRETARY
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