Leave Encashment Tax Calculator
Calculate tax on leave encashment under Section 10(10AA)
About Leave Encashment Calculator
The Leave Encashment Calculator computes the amount receivable when you encash accumulated leave at the time of retirement, resignation, or during employment. Leave encashment can be partially or fully exempt from tax under Section 10(10AA) of the Income Tax Act — government employees enjoy full exemption, while non-government employees get exemption up to the least of: (1) actual amount received, (2) 10 months' average salary, (3) ₹3 lakh, or (4) specified formula amount.
Leave encashment is a significant benefit that many employees overlook during financial planning. Both earned leave and half-pay leave can be encashed, subject to company policy. During employment, leave encashment is fully taxable as salary income. However, at retirement or resignation, partial exemption is available. Our calculator handles both scenarios and provides the tax-efficient calculation for FY 2026-27.
Key Features
- Calculate leave encashment for retirement and resignation
- Tax exemption under Section 10(10AA)
- Government vs non-government employee computation
- Average salary calculation (last 10 months)
- Monthly encashment during employment scenario
Frequently Asked Questions
Is leave encashment taxable on retirement?
For government employees, leave encashment on retirement is fully exempt from tax under Section 10(10AA)(i). For non-government employees, exemption is available up to the least of: (1) actual amount received, (2) 10 months' average salary, (3) ₹3 lakh, or (4) cash equivalent of leave earned (not exceeding 30 days per year of service) based on average salary. The excess is taxable as salary income.
How is average salary calculated for leave encashment exemption?
Average salary for leave encashment is calculated as the average of basic salary, dearness allowance, and commission (if fixed percentage of turnover) received during the 10 months immediately preceding the month of retirement or resignation. HRA, transport allowance, and other allowances are not included in this average salary computation.
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