Respected Forum,
At the time of full and final settlement (leaving service by giving resignation), an employee is being paid unavailed earned leaves for 90 days.
Pls guide me, whether i should deduct TDS on it or it is 100% exempted from TDS.
No policy of the company to accumulate earned leaves, but we want to pay.
If no TDS is deducted, is there any liability on the company.
pls guide me accordingly
Tax Exemption Rules for Leave Encashment: Understanding Section 10(10AA)(ii) of the Income Tax Act. An employee inquired about the tax deduction at source (TDS) on the encashment of unavailed earned leaves upon resignation. The response referred to Section 10(10AA)(ii) of the Income Tax Act, stating that the least of the following is exempt from tax: cash equivalent of leave salary for earned leave, 10 months' average salary, Rs. 3 lakh, or the actual amount received. The calculation involves determining the leave standing to the employee's credit and average monthly salary. The exemption limit is Rs. 3 lakh, and certain amounts received by legal heirs or families of deceased government servants are not taxable. (AI Summary)
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