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

Under the Income-tax Act, 2025 (applicable from the June 2027 session), Mr. Sharma, a State Government employee, receives cash equivalent of earned leave salary at the time of his retirement on superannuation. What is the tax treatment of this payment?

The entire amount is allowed as a deduction, because leave encashment at retirement received by a Central or State Government employee is fully covered under Serial No. 13 of the section 19(1) Table. The monetary limits apply only to non-Government employees.

  1. ADeduction limited to ten times average monthly salary of the preceding ten months
  2. BDeduction limited to the amount notified by the Central Government
  3. CDeduction limited to thirty days of leave for every year of actual service
  4. DEntire amount is allowed as deduction from salary incomeCorrect

Explanation

Serial No. 13 of the Table in section 19(1) allows the entire amount of leave salary encashed at retirement by a Central or State Government employee as a deduction. The limits of ten months' average salary and the notified amount apply under Serial No. 14 only to non-Government employees, so those options are wrong for Mr. Sharma.

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