The Association of University Teachers (AUT) has appealed to the Central Board of Direct Taxes to exempt from income tax the encashment of unearned leave on private affairs (ULPA) at the time of retirement by State government employees.
In a memorandum to the Chairman of the board, K.Pandiyan, zonal secretary of the association, said State government employees in Tamil Nadu were permitted to encash a maximum of 90 days of ULPA at the time of retirement, besides 240 days of Earned Leave. Central government employees encash a maximum of 300 days of Earned Leave at the time of retirement. When there was less than 300 days of earned leave at credit of a Central government employee, he or she is permitted to adjust the shortage from the half pay leave (30 days per year) so as to reach the 300 mark.
The half pay leave of the Central government employees is equivalent to that of the ULPA available to the employees of the Tamil Nadu government. While the entire earned leave (EL) encashment of 300 days of the Central government employees are exempt from income tax, State government employees are given exemption for only 240 days of EL encashment. The encashment of 90 days of ULPA by State government employees is not entitled for exemption on par with the Central government employees.
For a long period of time, income tax was not levied for encashment of ULPA for employees of the State government. But, all of a sudden, the Treasury offices in Tamil Nadu insist on payment of income tax for encashment of ULPA, based on an audit objection, Dr.Pandiyan said.
Since retirement benefits such as gratuity, commutation of pension and encashment of leave are totally exempt from income Tax, the association requested the Central Board of Direct Taxes to issue suitable instructions so as to ensure that encashment of ULPA was not taxed. Based on natural justice and equality before law, Tamil Nadu government employees should be treated on a par with Central government employees in the matter of payment of income tax for leave encashment at the time of retirement, he said.