Leave encashment payout
1. Number of days of leave encashment - this information flows in from Eaze - Leave module if it is integrated or in case of Full and Final it can be manually updated by Payroll Manager
2. Heads of salary to be included in leave encashment - this can be selected in "Deductions and Encashment grid" from payroll company setup - in the column Leave Encashment
3. The number of days in a month for the purpose of calculating the leave encashment amount is taken the number of actual days in the month.
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Example
Number of days of Leave encashment = 12
Heads of salary included in Leave Encashment
- Basic : 15,000
- HRA : 7,500
Leave encashment being paid in - June 2022
Number of actual days in month = 30
Leave Encashment = 12 x (15000 + 7500) / 30 = 9,000
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Note
1. Leave encashment amount will be only based on the salary of the month in which
leave encashment is paid out. If there is a back dated salary increment being
processed in the month then there would be arrears being paid, leave encashment
is not paid on the arrears
2. If the salary for the month in which encashment has been paid is increased
or decreased subsequently then the encashment amount is not changed
3. Leave encashment paid during payroll will be taxable - refer article on Payroll process - step 2,
for more details on payment of leave encashment during payroll
Leave Encashment settlement with Full and Final
Leave
encashment which is paid to employee will be tax free as per Section 10 (10AA)
of income tax rules. Leave encashment is tax free up to minimum of the following
- up to INR 25 lakhs for retiring or resigning employees, this includes the leave
encashment amount received at previous employers
- 10 month x "Average Salary of 10 months" (if employee works for less then 10
months then only the salary for the full months worked)
Refer to the article on Leave Encashment Payout for details on how the amount which is to be paid in leave encashment is calculated.
Statutory Deductions on Leave Encashment
You can deduct share for statutory compliance like ESI, PF and PT on Leave encashment
payment also by selecting these head from "deduction and encashment grid".
These selection are to be done on the row which is shown as "Leave encashment".
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