Leave encashment salary while in service-Eligibility for relief under s. 89(1) of the I.T. Act, 1961-Regarding - Income Tax - 431/1985

Leave encashment salary while in service-Eligibility for relief under s. 89(1) of the I.T. Act, 1961-Regarding Circular No.431 Dated 12/9/1985 Section 89(1) of the Income-tax Act, 1961, provides for relief to an assessee when salary, etc., is paid in arrears or in advance or if he receives in one financial year salary for more than 12 months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary and, therefore, his income is assessed at a rate higher than at which it would have otherwise been assessed. This relief is granted by the Income-tax Officer on an application made to him in this behalf. 2. The question of admissibility of relief under section 89(1) in respect of amounts received on encashment of leave salary while in service was considered by the Board. The Board are advised that relief under section 89(1) of the Income-tax Act, 1961, read with rule 21A of the Rules would be admissible in respect of encashment of leave salary by an employee when in service. The encashment of leave salary on retirement whether on superannuation or otherwise has already been exempted by insertion of clause (10AA) in section 10, by the Finance Act, 1982, with effect from April, 1978. Yours faithfully, (Sd.) P. Saxena, Secretary, Central Board of Direct Taxes.