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INCOME TAX
12. Mr. X was employed in a company. He retired from service on 1st January, 2020, after
completing 30 years of service. From 1st July, 2018 his pay scale was 8,000-200-10,000-300-
13,000 and he was getting dearness allowance @ 20% of his pay under the terms of employ-
ment. He had seven months' earned leave to his credit (on the basis of 30 days per year) which
was approved. Hence, he was paid 57,400 as salary and 11,480 as dearness allowance.
Compute the amount exempt regarding encashment of earned leave for the Assessment Year
Answers
very long question bro
Answer: Rs. 79,926.
Explanation: To compute the amount exempt regarding encashment of earned leave, we first need to calculate the average monthly salary of Mr. X during the last 10 months of his service.
From 1st July, 2016 to 31st December, 2017, there are 18 months, and we need to consider the last 10 months which is from March 2017 to December 2017.
The pay scale of Mr. X from 1st July, 2016 is 8,000-200-11,000-300-13,000.
His initial basic pay was Rs. 8,000 and it will be increased by Rs. 200 every year till it reaches Rs. 11,000. From there, it will be increased by Rs. 300 every year till it reaches Rs. 13,000.
Therefore, his basic pay as on 1st July, 2016 = Rs. 8,000
His basic pay as on 1st March, 2017 = Rs. 8,400 (since he completed 8 months of service after 1st July, 2016 and his pay was increased by Rs. 200 per month)
His basic pay as on 1st December, 2017 = Rs. 11,000 + 3 * Rs. 300 = Rs. 12,900 (since he completed 18 months of service after 1st July, 2016 and his pay was increased by Rs. 300 per month)
His total basic pay for the last 10 months of his service = Rs. 8,400 * 2 + Rs. 12,900 * 8 = Rs. 1,11,600
Dearness Allowance = 20% of his pay = 20% of Rs. 12,900 = Rs. 2,580
Gross salary for the last 10 months of his service = Rs. 1,11,600 + Rs. 2,580 = Rs. 1,14,180
Now, we need to calculate the amount of exempt encashment of earned leave.
The maximum amount of earned leave that can be encashed is 30 days per year, and Mr. X had 7 months of earned leave to his credit. Therefore, he is eligible to encash 7 * 30 = 210 days of earned leave.
The exemption available for encashment of earned leave is the least of the following:
Actual amount received as encashment of earned leave
Cash equivalent of unavailed earned leave
3,00,000
The cash equivalent of unavailed earned leave is calculated as follows:
Cash equivalent of unavailed earned leave = Average monthly salary * 10 * (Number of days of earned leave encashed / 30)
= Rs. 1,14,180 / 10 * 210 / 30
= Rs. 79,926
Therefore, the amount exempt regarding encashment of earned leave is the least of the above three, which is Rs. 79,926.