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CS Executive · Tax Laws and Practice · Income under the Head Salary

Mr. Kulkarni, a non-Government employee, retires with 12 years of actual service and has 200 days of earned leave at credit. His average monthly salary for the preceding ten months is Rs. 40,000. He receives leave encashment of Rs. 3,00,000 and the notified Central Government limit is Rs. 25,00,000, with no earlier receipts. He is entitled to 30 days leave per year of service. What is the deduction under the Income-tax Act, 2025?

The deduction is Rs. 3,00,000, because it is the minimum of the leave cash equivalent, ten times average monthly salary of Rs. 4,00,000, the notified limit of Rs. 25,00,000 and the actual payment of Rs. 3,00,000. Nothing is taxable.

  1. ARs. 3,00,000Correct
  2. BRs. 4,00,000
  3. CRs. 2,66,667
  4. DRs. 2,40,000

Explanation

Serial No. 14 takes the minimum of: (a) cash equivalent of leave at credit, capped at 30 days a year of service; (b) 10 x average monthly salary = 4,00,000; (c) notified limit 25,00,000; (d) actual payment 3,00,000. Here the cash equivalent of leave entitlement is at most that given by the payment received, which is Rs. 3,00,000 and the lowest value overall. Hence the deduction is Rs. 3,00,000, and the balance is nil.

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