🎁 Enter Your Details
Sector Category
Timing of Leave Encashment
Leave & Salary Particulars
Actual Leave Encashment Received ₹1,00,000
₹
The total leave encashment amount paid to you by your employer.
10-Month Avg Monthly Salary ₹1,00,000/mo
₹
Average of last 10 months' (Basic + DA + fixed % commission on turnover). Exclude all other allowances.
Completed Years of Service 10 years
👤
Ignore fractions of a year (e.g., 15 years and 9 months should be entered as 15).
Company Leave Entitlement per Year 0 days/yr
📅
Annual earned leave (EL) / privilege leave (PL) quota allowed by your employer. Capped at 30 days for tax calculations.
Unused Earned Leave Balance 0 days
📝
Your remaining unused earned leaves at the time of resignation/retirement.
Exemption Claimed in Past Years ₹0
₹
Any leave encashment tax exemption claimed under Sec 10(10AA) in previous employments.
🎁
Enter your details and click Calculate to see your tax-free and taxable leave encashment details.
The Calculation
How is Leave Encashment Exemption Calculated?
Section 10(10AA) Exemption Rules
The tax exemption on leave encashment is governed by the employment type and timing. For private sector employees, it's the minimum (lowest) of four numbers:
The 4-Limit Check for Private Sector
Rule 1: Actual leave encashment received from the employerRule 2: ₹25 Lakhs statutory limit minus any exemptions claimed in past years
Rule 3: 10 Months' average salary (Basic + DA + fixed turnover commission)
Rule 4: Cash equivalent of leave balance (Leave balance capped at 30 days per year of service)
1
Actual payout amount
2
₹25L Lifetime Ceiling
3
10 Months' Avg Salary
4
Capped Leave Equiv.
Complete Guide
Exemption Rules — Government vs Private Employees
💡 Good News: Leave encashment exemption under Section 10(10AA) is available under both Old and New tax regimes.
1. Government Employees
Central and State Government employees enjoy a complete tax shelter on leave encashment at retirement:
- At Retirement / Resignation: Entire leave encashment is 100% tax-free. There is no monetary ceiling.
- During Active Service: If leaves are encashed while working, the receipt is fully taxable as salary.
2. Non-Government (Private / Public Sector) Employees
For private sector employees, public sector undertakings, and bank staff, the exemption is subject to a lifetime cap and formula-based evaluation:
- Lifetime Ceiling: A maximum tax exemption of ₹25,00,000 (₹25 Lakhs) can be claimed over your lifetime. This limit was increased from ₹3,00,000 by Budget 2023.
- Capped Leaves: Even if your employer allows more than 30 days of leave per year, the tax law recalculates your unutilized leaves based on a strict cap of 30 days of leave per completed year of service.
- Completed Years: Partially completed years (e.g., 20 years and 11 months) are ignored. Only fully completed years (20) are used.
- Salary Definition: "Salary" for the purpose of the 10-month average means strictly Basic Salary + Dearness Allowance (DA) + fixed percentage commission. All other bonuses, HRA, and perks are excluded.
Walkthrough Example
Step-by-Step Calculation Example
Let's consider a private sector employee with the following details retiring after 20 completed years of service:
- Completed Years of Service: 20 years
- Company annual leave quota: 40 days per year
- Earned Leave Balance at retirement: 480 days
- Leaves Availed (taken) during service: (40 days × 20 years) − 480 balance = 320 days
- 10-Month Average Salary (Basic + DA): ₹90,000/month
- Actual leave encashment received: ₹14,40,000
How the Exemption is Calculated:
- Rule 1 (Actual Paid): ₹14,40,000
- Rule 2 (Ceiling): ₹25,00,000
- Rule 3 (10 Months' Salary): ₹90,000 × 10 = ₹9,00,000
- Rule 4 (Cash Equivalent):
Under tax law, maximum leave allowed is 30 days per year. Total eligible leaves = 30 × 20 = 600 days.
Leaves availed = 320 days.
Tax-adjusted leave balance = 600 − 320 = 280 days.
Daily salary rate = ₹90,000 / 30 = ₹3,000/day.
Cash equivalent = ₹3,000 × 280 days = ₹8,40,000.
Result: The exempt amount is the lowest of the four values, which is ₹8,40,000 (from Rule 4).
Taxable leave encashment: ₹14,40,000 (actual) − ₹8,40,000 (exempt) = ₹6,00,000. This ₹6 Lakhs will be added to the taxpayer's salary income for tax slab computation.
FAQs
Frequently Asked Questions
What is the new tax exemption limit for leave encashment?
Starting from FY 2023-24 (effective from April 1, 2023) and continuing through FY 2025-26, the statutory limit for leave encashment exemption for non-government employees has been raised to ₹25,00,000 (₹25 Lakhs) from the older limit of ₹3,00,000.
Can I claim leave encashment exemption under the New Tax Regime?
Yes. Unlike many other exemptions (like HRA, LTA, and Section 80C) which are lost under the New Tax Regime, the leave encashment tax exemption under Section 10(10AA) remains fully available under both the Old and New tax regimes.
Is leave encashment taxable if it is received during active employment?
Yes, 100%. If you encash your accumulated leaves while continuing your service with the employer, the received amount is fully taxable under the head "Income from Salary." No tax exemption is allowed in this case. The exemptions only apply at retirement, resignation, superannuation, or termination.
What happens to leave encashment in case of an employee's death?
If leave encashment is paid to the legal heirs or family members of a deceased employee, the entire amount is fully exempt from income tax, regardless of whether the employee worked in the government or private sector.
How does a past claim affect my leave encashment exemption?
The statutory limit of ₹25 Lakhs is a lifetime cumulative limit. If you have already claimed a tax exemption on leave encashment in previous years (for example, when switching jobs and encashing leaves at the previous employer), that exempted amount is subtracted from the ₹25 Lakhs cap. The remaining balance is the maximum ceiling for your current claim.
Does "salary" include bonuses or HRA for this calculator?
No. For Section 10(10AA) calculations, "salary" strictly includes only Basic Salary, Dearness Allowance (DA) (if it forms part of retirement benefits), and fixed commission based on business turnover. House Rent Allowance (HRA), bonuses, gratuity, and all other allowances are excluded.