Wise people don’t ask for money in exchange for vacation! But not everyone understands this thing, this is how you get benefit
Taking money in lieu of leave while working is a loss deal.
With the increase in salary in the company, the cost of leave also increases.
Tax is deducted on money received in lieu of leave while working.
New Delhi. Has your company ever offered you Leave Encashment? Even if your basic salary is 30 thousand, then it means 1000 rupees for one day, 15 thousand rupees for 15 holidays. Sounds like a good offer doesn’t it? But there is a catch in this. If you take money in lieu of your holidays while working, then the amount you will get is fully taxable. On the other hand, if you get money in lieu of holidays as a final settlement after leaving the job or retirement, then the amount up to 25 lakhs will be tax free. Earlier this limit was up to Rs 3 lakh for private employees, now the government has increased it to Rs 25 lakh. For government employees, this limit was already 25 lakhs.
But the disadvantage of taking leave encashment while in job is not only tax, but it has one more disadvantage as well. So now if your company offers you money in exchange for leave, then before taking the offer, you can save yourself from a big loss by doing some research.
read this also- Good news for the employed! If you take money from the company instead of holidays, you will get big relief on tax, there will be 8 times profit
Which holidays are Encash?
Any company gives different types of holidays to its employees. There are casual or emergency leaves, they lapse with the end of the year. Whereas, paid or earned leave gets added to your leave balance. These holidays are carried forward even after the end of the year and these holidays can be encashed. Private companies keep an upper cap on these holidays. When there are more than 70 holidays in a company, the holidays start getting lapsed, while in some this limit is only up to 45-50.
So it is necessary that along with checking your leave balance, you must also check the leave policy of your company. If the holidays are close to the upper cap, then taking leave or leave money in lieu is the right option. Or if you are in dire need of money then take encashment. Remember this money will come under the ambit of tax. But if you have the scope to accumulate holidays, then keep it safe.
What are the other disadvantages of taking leave encashment while on the job?
While on a job, the expectation of appraisal and increment also remains. It is possible that after the increment, your basic salary will be more than now. In such a situation, taking leave encashment now can be a loss deal for you. Your salary at the time of leaving any company will be your best salary in that company and in lieu of accumulated holidays, you will get money according to that salary. This means that the cost of your holiday will increase.
So if you have any need for money or there is a risk of lapsing, then only you should choose the option of leave encashment while staying in a company, otherwise the best option is to allow the leave to be accumulated. On leaving the job, you will get the money yourself instead. The bonus is that you will not have to pay any tax on it.
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FIRST PUBLISHED : May 26, 2023, 20:54 IST