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Leave Encashment Calculator

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Leave Encashment Tax Calculator

Calculate tax on leave encashment under Section 10(10AA)

Section 10(10AA): Exemption on leave encashment is available only at the time of retirement/resignation. Government employees get full exemption. For non-government employees, exemption is the least of: (a) 10 months' average salary, (b) Actual encashment amount, (c) ₹3,00,000 (notified limit), (d) Leave encashment amount as per rules.
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gavel Legal Disclaimer

This calculator is for informational and educational purposes only. Tax calculations are based on the Income Tax Act, 2025 (effective April 1, 2026) and may not reflect all individual circumstances. Tax slabs, rebate thresholds, and deduction limits are subject to change through government notifications. This tool should not be considered as tax advice. Always verify the latest tax rules at incometax.gov.in and consult a qualified Chartered Accountant for personalized guidance.

verified Source: Income Tax Department, Govt. of India • Last updated: 2026-05-04

update Latest Updates & Regulatory Changes

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NEW

new_releases Income Tax Act, 2025 Effective

The new Income Tax Act, 2025 came into effect from April 1, 2026, replacing the Income Tax Act, 1961. New tax slabs, revised rebate u/s 87A (up to ₹60,000), and ₹75,000 standard deduction under the default New Regime are now applicable.

UPDATED

update New Tax Regime is Default

Under the Income Tax Act, 2025, the New Tax Regime is the default regime. Taxpayers must explicitly opt for the Old Regime. Salaried individuals with taxable income up to ₹12,75,000 pay zero tax under the New Regime.

IMPORTANT

priority_high Rebate u/s 87A Enhanced

Section 87A rebate increased to ₹60,000 (from ₹25,000) for taxable income up to ₹12,00,000 under the New Regime. This effectively makes salaried income up to ₹12,75,000 tax-free.

NEW

table_chart 7-Slab Structure Introduced

The New Regime now has 7 tax slabs (0%, 5%, 10%, 15%, 20%, 25%, 30%) instead of the previous 5-slab structure, providing more gradual tax progression.

description Terms, Rules & Regulations

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Income Tax Act, 2025

All income tax calculations are governed by the Income Tax Act, 2025, effective from April 1, 2026. The Act replaces the Income Tax Act, 1961 and introduces revised tax slabs, enhanced rebates, and updated compliance requirements. Taxpayers must file returns as per the new provisions.

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Assessment Year & Financial Year

The Financial Year (FY) runs from April 1 to March 31. The Assessment Year (AY) is the year following the FY in which income is assessed and taxed. For FY 2026-27, the AY is 2027-28. ITR must be filed by the due date specified for the applicable AY.

policy

Tax Regime Selection

The New Tax Regime is the default regime under the Income Tax Act, 2025. Taxpayers wishing to opt for the Old Regime must explicitly select it while filing their ITR. Once opted out of the New Regime, salaried individuals can switch back only once. Business/professional taxpayers have limited switching options.

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Data Accuracy

Tax slabs, rebate limits, and deduction caps are sourced from the Income Tax Act, 2025 as notified by the Government of India. Surcharge rates, marginal relief provisions, and cess rates are applied as per statutory guidelines. Users are advised to cross-verify with official sources.

Frequently Asked Questions

Find answers to common questions about leave encashment calculator. Click on any question to expand the answer.

Leave Encashment is the compensation received by an employee for unused earned leaves (privilege leave) at the time of retirement, resignation, or superannuation. The calculation method depends on the employer's leave policy — it can be based on basic salary only or basic salary plus dearness allowance (DA). The standard formula is: Leave Encashment = Number of Unutilised Leaves × (Basic Salary + DA) ÷ 30. Some organizations calculate it on last drawn salary while others use average salary of the last 10 months. Our Leave Encashment Calculator helps you compute the exact amount based on your employer's specific policy.

Under Section 10(10AA) of the Income Tax Act, leave encashment received at the time of retirement or superannuation is exempt from tax for government employees without any upper limit. For non-government employees, the exemption is the least of the following: (1) Actual leave encashment received, (2) 10 months' average salary (basic + DA + commission as percentage of turnover), (3) Cash equivalent of unutilised earned leave (max 30 days per year of service), (4) ₹25 lakh (enhanced from ₹3 lakh by Budget 2023). Only leave encashment at retirement or superannuation qualifies for exemption; encashment during service is fully taxable.

The ₹25 lakh limit (effective from FY 2023-24, earlier ₹3 lakh) under Section 10(10AA) is a lifetime cap for non-government employees. This means if you claim exemption on leave encashment from multiple employers over your career, the total exemption cannot exceed ₹25 lakh. For example, if you encashed ₹5 lakh from your first employer and ₹22 lakh from your second employer, the total exemption would be limited to ₹25 lakh, and ₹2 lakh would be taxable. The exemption is the least of the four limits specified in Section 10(10AA), not automatically ₹25 lakh.

Yes, leave encashment received while still in service is fully taxable as salary income and does not qualify for any exemption under Section 10(10AA). The tax exemption under Section 10(10AA) is available only when leave encashment is received at the time of retirement, superannuation, or resignation. However, some employers allow employees to encash a certain number of leaves annually as part of their leave policy, and this amount is added to gross salary and taxed at the applicable slab rate. It is advisable to use leaves rather than encashing them during service to maximize the tax benefit at retirement.

For the purpose of tax exemption under Section 10(10AA), the maximum earned leave that can be encashed is calculated as 30 days per completed year of service. The actual leave entitlement depends on the employer's leave policy — some organizations allow 15 days, 20 days, or 30 days of earned leave per year. The unutilised leave is calculated based on the employer's policy, subject to a maximum of 30 days per year of service. For example, if you worked for 25 years and your employer grants 20 days of earned leave per year, you can encash up to 500 days (25 × 20) of unutilised leave.

Average salary for leave encashment exemption under Section 10(10AA) is calculated as the average of the basic salary, dearness allowance (if forming part of retirement benefits), and commission (if calculated as a percentage of turnover) during the 10 months immediately preceding the month of retirement or superannuation. The formula is: Average Salary = Total Salary (Basic + DA + Commission) of Last 10 Months ÷ 10. This average salary is then multiplied by the number of unutilised earned leave days to arrive at the cash equivalent, which is one of the four limits for tax exemption.

Yes, leave encashment received by government employees (Central and State government) at the time of retirement or superannuation is fully exempt from income tax under Section 10(10AA)(i). There is no monetary limit on the exemption for government employees, unlike non-government employees who are subject to the ₹25 lakh cap and other conditions. This includes employees of Central and State governments, local authorities, and statutory corporations. However, leave encashment received by government employees during service continues to be fully taxable.

The Leave Encashment Calculator computes your leave encashment amount and the applicable tax exemption. Enter your basic salary, dearness allowance, years of service, earned leave per year (as per employer policy), unutilised leave balance, and actual encashment received. The calculator determines the exempt amount as the least of the four limits under Section 10(10AA) and shows the taxable portion. It also factors in the enhanced ₹25 lakh limit applicable from FY 2023-24. This tool is useful for employees planning retirement and Chartered Accountants advising on tax-efficient leave encashment strategies.

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