Employer Type
Results
Exempt vs Taxable Breakdown
| Metric | Value |
|---|---|
| Total Service Period | - |
| Completed Years (Sec 10(10AA)) | - |
| Leaves Entitled (Total) | - |
| Leaves Availed | - |
| Leaves Encashed Earlier | - |
| Leaves Eligible for Encashment | - |
| Monthly Salary (Basic + DA) | - |
| Per Day Salary | - |
Section 10(10AA) - Exemption Basis (Lowest of 4)
| Basis | Amount |
|---|
Your results will appear here
Select a scenario, fill in your details, and click CalculateHow It Works
Choose from On Resignation, On Retirement, During Service, or On Death. Each has different tax treatment under Indian law.
Input your Basic + DA, service period, total leaves entitled, availed, and any prior encashments. Dates auto-fill the service period.
See your gross encashment, Section 10(10AA) 4-way minimum exemption, taxable amount, and the exempt vs taxable visual bar.
Tax Exemption Rules at a Glance
| Scenario | Employer Type | Section | Tax Treatment |
|---|---|---|---|
| At Retirement | Government | 10(10AA)(i) | 100% Exempt |
| At Retirement | Non-Government / Private | 10(10AA)(ii) | Exempt up to ₹25,00,000 |
| At Resignation | Government | 10(10AA)(ii) | Exempt up to ₹25,00,000 |
| At Resignation | Non-Government / Private | 10(10AA)(ii) | Exempt up to ₹25,00,000 |
| During Service | Any | - | Fully Taxable |
| On Death | Any | - | Fully Exempt (Legal Heirs) |
* ₹25L limit is a lifetime limit across all employers, effective 1-April-2023 per CBDT Notification No. 31/2023.
Understanding Leave Encashment
What Is Leave Encashment?
Leave encashment (also called leave salary or leave encashment payout) is the monetary compensation an employee receives in exchange for unused leave days. In India, this typically applies to Earned Leave (EL) or Privilege Leave (PL) - the two most common encashable leave types. Casual Leave (CL) and Sick Leave (SL) are generally not encashable under most company policies, though this varies by employer.
Which Leaves Are Encashable?
In India, Earned Leave (EL) / Privilege Leave (PL) are the primary encashable leaves. Central Government employees accrue 30 days of EL per year (maximum accumulation: 300 days). Private sector employees get varying entitlements per company policy. CL and SL are typically "use it or lose it" and are not encashable in most organizations.
The Leave Encashment Formula
Leaves Eligible = (Leaves/Year × Completed Years) - Availed - Encashed Earlier Per Day Salary = (Basic + DA + Commission) ÷ Working Days per Month Gross Amount = Leaves Eligible × Per Day Salary
Section 10(10AA) Explained
Section 10(10AA) of the Income Tax Act, 1961 grants tax exemption on leave encashment. For government employees at retirement, the entire amount is exempt. For all other cases (non-government employees, resignations), the exemption is the minimum of four values: (A) actual encashment received, (B) ₹25,00,000 statutory limit, (C) 10 × average monthly salary of last 10 months, and (D) cash equivalent of unavailed leaves (max 30 days per completed year). This 4-way minimum prevents abuse of the exemption.
₹25 Lakh Lifetime Limit
Prior to April 1, 2023, the exemption limit for non-government employees was a meagre ₹3,00,000 - a figure unchanged since 2002. The CBDT revised this to ₹25,00,000 via Notification No. 31/2023 (dated 24-May-2023), effective from FY 2023-24. This is a lifetime limit across all employers. If you've claimed ₹10L exemption from a previous employer and switch jobs, your remaining limit is ₹15L. Use the "Previous Exemption Claimed" field to account for this.
Leave Encashment vs Gratuity
Both are separation benefits but serve different purposes. Gratuity is a statutory benefit paid for loyalty (minimum 5 years of service), capped at ₹20 lakhs under the Payment of Gratuity Act. Leave encashment compensates for unused leaves and has a ₹25L exemption cap. Both are exempt up to their respective limits under the Income Tax Act - they are independent exemptions and do not offset each other.
Old Regime vs New Tax Regime
Section 10(10AA) exemption is available under both the old and new tax regimes. The exempt portion is excluded from taxable income in either case. The taxable portion (Gross Encashment - Exempt Amount) is added to your salary income and taxed at your applicable slab rate - which differs between old and new regime. Choose the regime that gives you a lower overall tax liability after accounting for all exemptions and deductions.
Frequently Asked Questions
What is leave encashment?
Leave encashment is the monetary payment an employee receives in lieu of unused earned/privileged leave days. It is calculated as: (Eligible Leave Days) × (Monthly Salary ÷ Working Days per Month). In India, it is most commonly paid at the time of retirement, resignation, or death. The payment compensates employees for leave they earned but did not use.
How is leave encashment calculated?
Step 1: Calculate Leaves Eligible = (Leaves per Year × Completed Service Years) - Leaves Availed - Leaves Encashed Earlier. Step 2: Calculate Per Day Salary = (Basic + DA + Commission) ÷ Working Days per Month. Step 3: Gross Encashment = Leaves Eligible × Per Day Salary. Then apply Section 10(10AA) exemption rules to determine the taxable and exempt portions.
Is leave encashment taxable in India?
It depends on the scenario. Government employees at retirement - 100% exempt under Sec 10(10AA)(i). Non-government employees or at resignation - exempt up to the minimum of four values, maximum ₹25 lakhs lifetime. During service - fully taxable, no exemption available. On death - fully exempt in the hands of legal heirs.
What is Section 10(10AA)?
Section 10(10AA) of the Income Tax Act, 1961 is the provision that grants tax exemption on leave encashment income. Sub-section (i) provides full exemption for government employees at retirement. Sub-section (ii) provides partial exemption for non-government employees at retirement or resignation, limited to the minimum of: actual amount received, ₹25 lakhs, 10 × average monthly salary, and cash equivalent of unavailed leaves at 30 days/year maximum.
What is the ₹25 lakh limit for leave encashment?
The ₹25,00,000 limit is the maximum tax exemption a non-government employee can claim over their entire working life - across all employers. Raised from ₹3 lakhs via CBDT Notification No. 31/2023 effective 1-April-2023. If you've claimed ₹10L exemption from a previous employer, your remaining lifetime limit is ₹15L. This limit does not apply to government employees at retirement (they get full exemption).
Is leave encashment during service taxable?
Yes - fully taxable. Under Section 17(1)(v) of the Income Tax Act, leave encashment during the period of employment is treated as salary income and taxed at your applicable slab rate. There is no exemption under Section 10(10AA) for in-service encashment. This is different from terminal encashment at separation.
Are government employees taxed on leave encashment?
Government employees (central and state) at retirement are completely exempt from tax on leave encashment under Section 10(10AA)(i) - there is no limit on the exempt amount. However, at resignation (before retirement age), government employees fall under Section 10(10AA)(ii) and the ₹25 lakh limit applies. During service, even government employees are fully taxed.
Which leaves are encashable - EL, PL, CL, or SL?
In India, Earned Leave (EL) / Privilege Leave (PL) is the primary encashable leave. Central Government employees can accumulate up to 300 days of EL. Casual Leave (CL) is "use it or lose it" in most organizations and is generally not encashable. Sick Leave (SL) is usually for illness only and is not encashable. However, company-specific policies may vary - always check your employment contract or leave policy.
What is the formula for per day salary in leave encashment?
Per Day Salary = (Basic Salary + Dearness Allowance + Commission, if applicable) ÷ Number of Working Days per Month. The standard basis is 30 days per month for government employees. Many private companies use 26 working days (excluding Sundays). The choice of basis significantly impacts the encashment amount - always check your company policy.
Is leave encashment received on death taxable?
No - leave encashment received by the legal heirs of a deceased employee is fully exempt from income tax, regardless of the amount, employer type, or prior exemption claimed. This is provided under a separate ruling distinct from Section 10(10AA) and aims to protect the financial interests of bereaved families.
Can I claim exemption from multiple employers?
Yes, but the lifetime aggregate exemption cannot exceed ₹25,00,000 for non-government employees (across all employers). If you received leave encashment and exemption from one employer, you must deduct that amount when calculating the available limit from subsequent employers. Enter your previous exemption amount in the "Previous Exemption Claimed" field to get an accurate remaining limit.
How is average salary of last 10 months calculated?
The average salary for Section 10(10AA) Point C is the average of Basic + DA (forming part of retirement benefits) for the 10 months immediately preceding the month of retirement or resignation. For example, if you retire in October 2025, the average is taken from January 2025 to October 2025. For simplicity, this calculator uses your last drawn Basic + DA as a proxy - which is accurate if your salary has been stable. If your salary changed recently, the manual 10-month average gives a more precise result.