Leave Encashment Exemption Calculator

Find out how much of your unutilized leave payout is tax-free at retirement or resignation under Section 10(10AA) with the new ₹25 Lakh limit.

Rules | Formula | FAQs

Employment Details

Financial & Leave Data

Include Basic Pay + Dearness Allowance (DA).

Taxability Breakdown

Tax-Free (Exempt)

₹0

Taxable Amount

₹0
1. Actual Amount Received ₹0
2. Statutory Max Limit (New!) ₹25,00,000
3. 10 Months Average Salary ₹0
4. Cash Equiv of Unavailed Leaves ₹0
Exempt Amount is the LEAST of the above 4 items.

Calculation of Cash Equivalent

1. Leaves Entitled = (Completed Years) × Min(30, Employer's leaves per year)

Note: Income tax rules max out entitlement at 30 days per year.

2. Unavailed Leaves = Leaves Entitled - Leaves Availed

3. Cash Equivalent = (Unavailed Leaves / 30) × 10_Month_Avg_Salary

Leave Encashment Tax Rules 2026

When employees accumulate paid leaves but do not use them, they can exchange them for cash. This is called Leave Encashment. Under the Income Tax Act (Section 10(10AA)), the taxability of this amount depends on when you receive it and what type of employee you are.

The ₹25 Lakh Exemption Limit

In Budget 2023, the government significantly increased the tax exemption limit for leave encashment on retirement of non-government salaried employees from ₹3 Lakhs to ₹25 Lakhs. This applies to retirements or resignations on or after April 1, 2023.

Scenario Tax Treatment
Received during Service (Any Employee) Fully Taxable (added to salary)
Received at Retirement (Govt Employee) Fully Exempt (100% Tax Free)
Received at Retirement/Resignation (Non-Govt) Partially Exempt (Calculated via 4-point rule)
Received by Legal Heirs on death Fully Exempt

Frequently Asked Questions

1. Is Leave Encashment received during service taxable?
Yes. Any leave encashment received while you are still in service is FULLY taxable for ALL employees (both Government and Private sector). The Section 10(10AA) exemption only applies at the time of retirement or resignation.
2. What is the new maximum limit for leave encashment exemption?
For non-government employees retiring or resigning on or after 1st April 2023, the maximum statutory limit for tax exemption on leave encashment was increased from ₹3 Lakhs to ₹25 Lakhs.
3. How is leave encashment taxed for Government Employees?
For Central and State Government employees, leave encashment received at the time of retirement or superannuation is 100% EXEMPT from tax, without any upper limit.
4. How is 'Average Salary' calculated for this exemption?
Average Salary is the average of your Basic Salary + Dearness Allowance (DA) drawn during the 10 months immediately preceding your retirement or resignation.
5. What if my company allows 40 days of leave per year?
Even if your employer grants you 40 days of leave per year, the Income Tax Act restricts the calculation to a maximum of 30 days of earned leave per year of completed service for the purpose of the exemption formula.
6. Does this exemption apply on resignation?
Yes! The exemption under Section 10(10AA) applies whether you leave employment due to superannuation (retirement) or resignation.
7. What happens in case of the death of the employee?
If leave encashment is received by the legal heirs of a deceased employee, the entire amount is fully tax-free. It does not form part of the total income of the deceased or the legal heirs.
8. Can I claim the ₹25 Lakhs limit multiple times?
No. The limit of ₹25 Lakhs is a lifetime limit for non-government employees. If you claimed an exemption of ₹5 Lakhs from a previous employer, the limit available for your next resignation/retirement will be reduced to ₹20 Lakhs.

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