Discrimination between Govt employees and Non Govt employees in the matter of tax ability of Leave

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  1. Aurabinda Sil

    Aurabinda Sil New Member

    This letter sent to the Honble Prime Minister Sri N.Mody is produced below.

    May it please your Excellency ,

    I would like to draw your kind attention to the following fact for devising a redressal

    As per service rules of different Governments and non-Government organizations employees get ‘ Leave Salary ’ or Encashment of Earned Leave standing to the credit of the employees. This ‘ leave encashment ’ takes two forms , e.g. during continuance of service or service tenure or at the time of Superannuation/ Retirement or leaving the job.

    The tax treatment on earning of such leave salary is intended to be focused on here.

    Earning of leave salary during continuance of service is fully taxable. No question or doubt exists about this treatment. Question arises in the case of earning of leave salary at the time of retirement or leaving the job. In such cases discrimination has been made between Government employees and Non-Government employees which is not only ridiculous but also unjustified.

    In case of Govt employees ( both Central and State ) the full amount earned on account of encashment of Earned Leave, i.e. leave salary is fully exempted from tax as per sec. 10 (10AA)(i) of the Income Tax 1961 . But in the case of Non Govt employees this leave salary is taxable. Obviously some relief or exemption has been allowed as per sec. 10 (10AA)(ii) of the Income Tax 1961. In the case of Non Govt employees including employees of a Local Authority or a Public Sector Undertaking part exemption as follows has been allowed. Thus employees of a Public Sector undertaking or a Local Authority have been treated at par with that of a Private Sector organization.

    I may be permitted to mention in this regard that earnings or salary of employees of many private sector organizations or state/ central PSUs / State Govt Companies are much lower than that of Central Govt or State Govt employees. But they are made to pay higher tax compared to Govt employees ( Central or State). Many of these state PSUs or Companies are sick or their pay structure, DA etc are poor. Condition of many private sector small companies is also same. Then why such discrimination ? This may also be noted kindly that all PSUs are not same. Indian Oil Corpn, Bharat Petroleum, HPCL, ONGC, SAIL, NTPC, Coal India, Shipping Corporation, PGCIL, OIL , PFC , Neyveli Lignite , GAIL, NALCO , NMDC , Hindustan Aeronautics etc are PSUs and they are Maharatna or Navratna or Miniratna and Bengal Chemicals, Braithwaite, WBSEDCL, CSTC, NBSTC, SBSTC, Handicrafts Dev Corpn , Handloom & Power Loom Dev Corpn, REDC, State Warehousing Corpn, Dairy & Poultry Dev Corpn, Ceramic Dev Corpn, Film Dev Corpn, IDC, IIDC, Small Industries Dev Corpn, State Seed Corpn, Surface Transport Corpn and many others like these are ordinary state/ central PSUs. Pay structures of the two groups are entirely different. Not to speak of small private sector companies further. But in the matter of tax treatment all have been placed on the same platform which is surprising. Pay structures of the Central Govt and many State Govts also are better than many ordinary PSUs, be it central or state .

    Exemption from income tax on income from leave salary encashment as per Income Tax act 1961 is least of the following :

    i/ Period of earned leave in number of months to the credit of the employee at the time of retirement x Average monthly salary.

    ii/ Average monthly salary x 10.

    iii/ Leave salary encashment value actually received at the time of retirement.

    iv/ Rs. 300000.00 (Rs. Three lakh)

    In case of an employee receiving Rs. 5/6 Lakh say, exemption is Rs. 3 lakh, balance Rs. 2/3 lakh is taxable. In ordinary PSUs leave salary of high officials ranges from Rs. 5 lakh to 6/7 lakh whereas this figure reaches 14/15 lakh or more in the case of Maharatna/Navaratna/ Miniratna PSUs. Thus post tax income from leave salary of the employees of these two groups can be easily calculated. Leave salary of non Govt employees (both PSUs and private ) is subject to tax @ 30 % whereas employees of Government , either Central or State, get fully tax free leave salary. This discrimination need be eliminated early needless to say sir . Hope I have been able to clarify the issue. Awaiting your considered perusal of the matter and necessary action in this regard.


    Yours faithfully,

    Dt. 10 June , 2016

    A. Sil

    M.Com, MBM (Finance ) CU, LL.B, CA ( I ).

    Addl GM (Finance & Accounts), PSU.

    E mail : [email protected]

    Mobile : 9143154929
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