Step 1 – Discover duration/tenure of services in number of years
Step 2 – Find out the rate of earned leave entitlement from the service rules – how many days of leave is credited at the rendered service each year.
Assuming, in any case, earned leave is credited at the rate of 23 days leave for every time of administration, for step (b) calculation should be made at the rate of 23 days leave for each year of service.
Step 3 – Find out earned leave really taken or enchased (in number of days) amid the time of service, the calculation might be made as follow:-
Method- Step 1 × Step 2 less Step 3 ÷ 30
In CIT vs. R V Shahney wherein the case of a non-Government employee, leave salary encashed on resignation or retrenchment is taxable. But, relief u/s. 89 read with rule 21A of Income Tax Act would be acceptable. Notwithstanding, leave salary encashed on Voluntary Retirement or Compulsory Retirement is exempt u/s.10(10AA) (ii) to the degree specified therein. The extent of said section is reached out to leave encashment at the time of retirement whether such retirement is on superannuation or otherwise. The word “otherwise” covers the instance of Voluntary Retirement from service as held by Madras High Court.
In Sri Ganesh Sehnoy vs. The Managment Of Sherton Limited, insofar as leave encashment was concerned under this case, the court directed that it is only the basic salary which would be considered. The factors of basic pay, Dearness Allowances and all monthly allowances (including fuel expenses or vehicle cost, if applicable) would be considered.
In Khem Chand vs. Union of India, it was held that a government servant under suspension shall be entitled to a subsistence allowance at an amount equal to the leave salary which the Government servant would have drawn if he had been on leave on half average pay or on half pay and in addition, dearness allowance, if admissible on the basis of such leave salary.
