Salaried employee? Encashed leave? Know if you have to pay Income Tax

As per the Income Tax rules, leave encashment is taxable as a salary if you receive it while in service. If a government employee gets leave encashment at the time of retirement, then s/he doesn't have to pay tax on it. The official Income Tax website says, "​​​It is taxable if received while in service. Leave encashment received at the time of retirement is exempt in the hands of the Government employee. In the hands of non-Government employee leave, encashment will be exempt subject to the limit prescribed in this behalf under the Income-tax Law.​"

Salary income

Under Section 17 of the Income-tax Act, the term Salary is defined. It includes:

- wages;

- any annuity or pension;

- any gratuity;

- any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;

- any advance of salary;

- any payment received by an employee in respect of any period of leave not availed of by him;

- the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule;

- the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and

-  the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme, referred to in section 80CCD;

In other words, the salary can include everything you receive from the employer, including in cash, kind or as a facility.