Leave encashment / gratuity after resignation

Income Tax Income from Salary
1

I resigned from my company in Jan 2023 after working for 10+ years.
I believe that the leave encashment and the gratuity I received is not taxable.

Should I be using these 2 allowances:
Sec 10(10AA)-Earned leave encashment on Retirement
Sec 10(10)-Death-cum-retirement gratuity received

I’m confused because the above says “Retirement”, but I have not taken up retirement.
Definition of retirement I’m using: to stop work permanently.

2

Hi @bani2213

Gratuity and leave encashment are two taxable components of a salary (for a non-government employee) when the amount exceeds the exemption limit.

You can read about Tax, Eligibility and Exemption on Gratuity - Learn by Quicko and Tax of leave encashment.

Both of these can be paid at the time of retirement or resignation.

Yes, you can use both of these allowances.

1 Like
3

Thanks for correcting me.
Indeed gratuity and leave encashment are taxable.
In my case, both are partially exempt.

My confusion was around the wording of “Sec 10(10AA)” and “Sec 10(10)”. It mentioned “retirement”, so I wasn’t sure if its applicate for resignation (without retirement) as well or not. Based on your response, seems like it is applicable for resignation as well.

4

Hi @bani2213

Both of these allowances are taxable after the amount of exemption.
Hence, yes, it can be partially exempt and partially taxable.

Well, yes, even though it mentions the word"retirement", it is taxable when it is received, i.e, resignation or retirement whichever is earlier.

Hope this clarifies.

1 Like
5

Thanks for clarification.

6

employees have service/job retirement benefits like : e.g : VRS , leave encashment , gratuity , EPS , annuity . superannuation , bonus , severance pay , tips , pension , etc .

query : is there any such benefits / schemes for the people who are self-professional / self-employed ?

@Sakshi_Shah1
@Shrutika_Shah
@Hem_Shah

7

Hi @HIREiN

You can read about the expenses available to a business/professional here

8

Hello,

  1. In ITR3 where should the Gratuity and the Leave Encashment amount be specified?
  2. Also will the Gratuity and Leave Encashment (assume both are non taxable) be added as part of Total Income computation there by effecting the surcharge calculation?

Regards,
Ssandie

9

Hi @Ssandie,

Both of these need to be reported under the ‘Income from salary’ head. Moreover, no, such exempt income is not added to total income and hence does not affect the applicable slabs.