Leave Encashment Exemption Calculator
Determine your tax-exempt and taxable leave encashment at resignation or retirement. Evaluates the 4 statutory limits with the revised ₹25,00,000 ceiling for private and government employees.
How Leave Encashment Exemption Works Under Section 10(10AA)
Leave encashment is the cash equivalent paid to an employee for accumulated earned/privilege leaves at the time of retirement or resignation. The taxability depends strictly on whether the individual is in government or private service.
Central and State Government employees enjoy 100% tax exemption on leave encashment received at superannuation or retirement, irrespective of the amount.
For private sector employees, the exemption is restricted to the lowest of four limits. Any excess over the exempt portion is treated as salary income and taxed at your applicable slab rate.
Historically, the maximum statutory ceiling was pegged at ₹3,00,000 since 2002. Under the Union Budget 2023 announcements and subsequent CBDT gazette notification, this ceiling was raised more than eightfold to ₹25,00,000 for leave encashment received on or after April 1, 2023.
Frequently Asked Questions (FAQs)
What is the maximum tax-free limit for Leave Encashment for private employees? ▼
Under CBDT Notification No. 31/2023, the maximum statutory tax-free exemption limit for non-government (private sector) employees was increased from ₹3 Lakh to ₹25 Lakh for leave encashment received on retirement or resignation.
Are government employees fully exempt from tax on Leave Encashment? ▼
Yes, under Section 10(10AA)(i), leave encashment received by Central and State Government employees at the time of retirement or superannuation is 100% exempt from income tax without any monetary limit.
What are the four limits under Section 10(10AA)(ii)? ▼
The exemption for private employees is the least of: 1. Actual leave encashment received; 2. Statutory limit of ₹25 Lakh; 3. 10 months' average salary (Basic + DA); 4. Cash equivalent of unavailed earned leave (capped at 30 days per completed year of service).
Is leave encashment received while continuing employment taxable? ▼
Yes. Leave encashment received while in active service (not at retirement or resignation) is fully taxable as salary for all employees, though relief under Section 89 can be claimed.