Taking vacation money while working is a losing business.
With the increase in salary in the company, the value of leave also increases.
Tax is deducted on the amount 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 a day, 15 thousand rupees for 15 holidays. Sounds like a good offer right? But there is a catch. If you take your holiday pay while working, the money you receive is fully taxable. On the other hand, if you receive leave pay as a final settlement after quitting your job or retirement, the amount up to Rs 25 lakh 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, the limit was already 25 lakhs.

But the downside of taking vacation money while on the job isn’t just tax, it also has another downside. So now if your company offers you money in lieu of vacation, you can save yourself a big loss by doing some research before taking the offer.

Also Read- Good News For Employers! If you take money from the company instead of vacations, you will get big tax relief, 8 times profit

What holidays are in cash?
Any company gives different types of leave to its employees. There are casual or emergency leaves, they expire with the end of the year. While paid or earned leave is 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 a company has more than 70 holidays, the holidays begin to expire, while in others the limit is only 45-50.

So it is important that along with checking your leave balance, you also check your company’s leave policy. If vacations are close to the upper cap, taking vacations instead or skipping them is the right option. Or if you are in dire need of money, take encashment. Remember this amount will come under the ambit of tax. But if you have a vacation savings, keep it safe.

What are the other disadvantages of taking vacation pay while on the job?
During employment, appraisals and raises are also expected. It is possible that after the increment your basic pay will be more than now. In such a situation, taking leave now may be a losing trade for you. Your salary at the time of leaving any company will be your best salary in that company and you will be paid according to that salary in lieu of accrued leave. This means the cost of your holiday will increase.

So if you are in need of money or are in danger of losing it, then only you should choose the leave encashment option while you are with the company, otherwise the best option is to let the leave accumulate. When you quit your job, you’ll get the money yourself instead. The bonus is that you won’t have to pay any tax on it.

Tags: Business News in Hindi., Income tax, Latest Income Tax News, Income Tax Act

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