624. Relief in case of encashment of leave salary by an employee while in service - Whether admissible

1. Section 89(1) 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) read with rule 21A of the Income-tax 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 1-4-1978.

Circular : No. 431 [F.  No. 174/43/82-IT (A-II)], dated 12-9-1985.