Leave encashment exemption section 10AA

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  • Whether leave encashment exemption is available under new tax regime?
  • If applicable, can you please share the relevant notification for the same specifically allowing exemption
  • If not allowed, can you please share the relevant notification for the same specifically not allowing exemption
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As per section 10(10AA) of Income Tax Act ,any payment received by an employee as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise is exempted to the amount specified.
Section 115BAC which deals with the new regime of taxation does not specifically exclude the section 10(10AA) hence leave encashmen exemption is allowed under both the new & old regime of taxation.

Extract of Sec 115BAC :-

" section 115BAC by the Finance Act, 2023, w.e.f. 1-4-2024:

For the purposes of sub-section (1A), the total income of the person referred to therein, shall be computed—

(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or
section 10AA or clause (ii) or clause (iii) of section 16 or clause (b) of section 24 [in respect of the property referred to in sub-section (2) of section 23] or clause (iia) of sub-section (1) of section 32 or section 32AD
or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35or section 35AD or section 35CCC or under any of the provisions of
Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or sub-section (2) of section 80CCH or section 80JJAA;

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Thanks @sojin.thomas

In exclusion list of section 10 or section 10AA is included. Section 10AA ,I suppose refers to Leave Encashment?

Would appreciate your comments.

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Hi @sojin.thomas ,

Is leave encashment taxable for existing employees or exempt under U/S 10AA?

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Section 10(10AA) - (“Section 10 clause 10AA”) deals with leave encashment. where as section 10AA deals with Special provisions in respect of newly established Units in Special Economic Zones.
Only clause (5) or clause (13A) or prescribed under clause (14) or clause (17) or clause (32), of section 10 are excluded in Sec 115BAC. Clause 10AA is not excluded which is leave encashment

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Leave encashment received at his credit at the time of his retirement whether on superannuation is only exempted .
when it is received during the period of service is fully taxable.

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Hi,

For existing employees it is taxable.

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Thanks a lot for your reply…it helps

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