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Leave Encashment Tax Exemption Calculator

Tax-exempt leave encashment on retirement or resignation under Section 10(10AA) — least of actual amount, ₹25 lakh limit, 10 months’ average salary, or cash for up to 30 days per year of service.

Average monthly basic + DA (last 10 months)

Completed years of service

Leave already availed / encashed during service (days)

Annual leave entitlement (days, max 30 counted)

Leave encashment actually received

Employer type

Tax slab on the taxable part

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How it works

Exempt = least of: amount received; ₹25,00,000; 10 × average monthly salary (basic + DA, last 10 months); (30 days × years of service − leave availed) × salary ÷ 30

When a non-government employee receives cash for unused leave at retirement or resignation, Section 10(10AA) exempts the least of four figures: the amount actually received, the lifetime ceiling of ₹25 lakh (raised from ₹3 lakh in 2023), ten months of average salary, and the value of unavailed leave computed at no more than 30 days per completed year of service. “Salary” here means basic pay plus dearness allowance (and commission as a fixed percentage of turnover). Leave encashed while still employed is fully taxable. Government employees are fully exempt. The ₹25 lakh ceiling is cumulative across all employers in a lifetime.

Worked example

Average salary ₹80,000, 22 years, 300 days availed, ₹12 lakh received: 30 × 22 = 660 days earned, 360 unavailed × ₹2,667 = ₹9,60,000; ten months = ₹8,00,000; so ₹8,00,000 is exempt and ₹4,00,000 taxed — about ₹1,24,800 at 30%.

Frequently asked questions

Does the new tax regime allow this exemption?

Yes — Section 10(10AA) applies under both regimes.

What if I have earned leave of 45 days a year?

The exemption formula still counts only 30 days per year; the extra entitlement is taxable when encashed.

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Uses Indian income-tax rules for FY 2025-26 (AY 2026-27) as enacted in the Finance Act 2025, including 4% health and education cess. Scheme interest rates are those notified for the current quarter and change every quarter. Educational estimate, not tax advice.