Leave Encashment Calculator

Section 10(10AA) of the Income Tax Act provides an exemption for leave encashment received on retirement or superannuation. For central and state government employees, the entire amount received is fully exempt with no upper limit. For non-government employees, the exemption applies only on retirement (not resignation) and is limited to the least of four prescribed amounts — actual encashment, ₹25 lakh, 10 months' average salary, or the cash value of leave at credit (capped at 30 days per year of service).

The exemption cap was raised to ₹25 lakh by CBDT Notification No. 31/2023 dated 24 May 2023, effective FY 2023-24. Before this revision, the cap had been ₹3 lakh since 2002 — unchanged for over two decades despite significant salary growth. The ₹25 lakh limit applies per employee across all employers in their lifetime; if exemption was claimed at a previous job, the remaining balance is what counts.

Yes. Only earned leave (also called privilege leave or annual leave) accumulates, can be carried forward, and is encashed on exit. Casual leave and sick leave typically lapse at the end of the year and are not encashed in most organisations. Accordingly, only the balance of earned leave qualifies for the Section 10(10AA) computation. If your employer encashes any casual or sick leave as part of a settlement, that amount is generally fully taxable.

Yes — fully taxable at slab rates for both government and non-government employees. The Section 10(10AA) exemption applies only when the encashment is received at the time of retirement, superannuation, or death while in service. Any leave encashment paid while still employed (e.g. a company policy that encashes leaves annually or upon request) is treated as salary income and taxed at the applicable slab rate with no exemption.