Leave Encashment TDS Compliance - CSIR

📋 Leave Encashment & TDS Compliance

Understanding Tax Deduction at Retirement - For Educational Purposes

📢 Official Notice: This document outlines the mandatory TDS (Tax Deducted at Source) compliance requirements for leave encashment at the time of retirement in autonomous research bodies.

📄 Source Document: Official Communication from Council of Scientific & Industrial Research (CSIR)

📅 Date: November 28, 2025

📌 Reference: 4-10(39)/2025/HR-II

🔗 Organization: Anusandhan Bhawan, 2 Rafi Marg, New Delhi - 110 001

🎯 Background & Overview

The Council of Scientific & Industrial Research (CSIR) issued a compliance notice regarding the proper deduction of Tax Deducted at Source (TDS) from the encashment of earned leave when employees retire. This notice addresses concerns raised during audits where non-deduction of TDS was observed, which was found to be in contravention of the Income Tax Act, 1961.

⚠️ Key Issue Identified

Main Concern: Various CSIR Laboratories and Institutes were not deducting TDS (Tax Deducted at Source) from the cash equivalent of leave salary paid to retired employees. This practice was in direct violation of Section 10(10AA) of the Income Tax Act, 1961.

The Comptroller and Auditor General (CAG) during their inspection found that this non-compliance was a significant issue across multiple CSIR institutions.

⚖️ Legal Framework & Provisions

Critical Tax Provisions:

• Section 10(10AA) of the Income Tax Act, 1961: Provides specific exemptions for government employees regarding leave encashment benefits
• Autonomous Body Status: CSIR, being an autonomous body, does not automatically qualify for the same exemptions applicable to Central/State Government employees
• Compliance Requirement: TDS must be deducted on leave encashment payments to CSIR employees following autonomous body taxation rules
• Government Approval: A specific Government of India approval would be required for CSIR to avail similar exemptions as central government employees

🔍 Legal Analysis & Opinion

After thorough examination in consultation with the Legal Adviser and Internal Finance Department (IFD) of CSIR, the following determination was made:

Official Determination: The provisions of taxation are applicable to CSIR in the same manner as they apply to other autonomous bodies. Therefore, the exemption under Section 10(10AA)(i) of the Income Tax Act, 1961, which is applicable to Central/State Government employees, is NOT automatically available to employees of CSIR or its constituent units.

✅ Compliance Directive

All CSIR Laboratories, Institutes, and Units have been advised to ensure strict compliance with the following:

• Deduction of TDS on payment of leave encashment to employees at the time of retirement
• Compliance applicable whether retirement is on superannuation or otherwise
• Application of taxation provisions applicable to autonomous bodies
• Adherence to all relevant provisions of the Income Tax Act, 1961
• Implementation across all HR and finance departments

📤 Official Distribution & Implementation

This directive has been issued with the approval of the Competent Authority and distributed to:

• PS to Director General, CSIR
• PS to Joint Secretary (Administration), CSIR
• PS to Financial Adviser, CSIR
• Office of Chief Vigilance Officer (CVO), CSIR
• Legal Adviser, CSIR
• All Senior and Junior Finance Officials across CSIR Labs, Institutes, HQ, and Units
• All Senior and Junior Administrative Officials
• IT Department for website hosting

📞 Contact & Additional Information

EPABX (Multi-line): 23710138, 23710144, 23710158, 23710468, 23710805, 23711251, 23714238, 23714249, 23714769, 23715303

Fax: 91-11-23714788

Official Website: http://www.csir.res.in

🖊️ Official Signatory

Issued By: Alok Sharma, Deputy Secretary

Position: Joint Secretary (Administration)

Organization: Council of Scientific & Industrial Research (CSIR)

Date of Issue: November 28, 2025

📥 Download Original PDF Document

⚠️ Disclaimer - Educational Purposes Only: This article is created for educational purposes to help government employees understand the leave encashment and TDS compliance requirements. While the information is based on official CSIR communications, it is not a substitute for professional tax or legal advice. For specific guidance regarding your individual situation, retirement planning, or TDS calculations, please consult with a qualified tax consultant, chartered accountant, or your organization's finance/HR department. The government employee's hub assumes no responsibility for any financial or tax-related decisions made based on this information.

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