Leave Encashment Calculator
How much of your leave encashment is tax-free on retirement — the sec 10(10AA) least-of-four rule for non-government employees.
What is leave encashment, and when is it tax-free?
When you retire or leave a job, your employer pays you for the earned leave you never took — that payment is leave encashment. For non-government employees, section 10(10AA)(ii) of the Income-tax Act exempts part of it from tax on retirement, and the exempt amount is the least of four statutory limits: what you actually received, a ₹25,00,000 lifetime cap, ten months' average salary, and the salary value of your unused leave with leave credit capped at 30 days per year of service.
This calculator works out all four limits from your numbers and shows exactly which one binds, how much of your encashment escapes tax, and how much gets added to your salary income. Government employees do not need it — their retirement leave encashment is fully exempt under section 10(10AA)(i).
The least-of-four rule
Exempt = least of [ A, B, C, D ]
- A — leave encashment actually received
- B — ₹25,00,000, the statutory lifetime cap
- C — 10 × average monthly salary of the last 10 months
- D — (average monthly salary ÷ 30) × unavailed leave days, where leave credit is capped at 30 days for every completed year of service
"Salary" here means basic pay plus dearness allowance (where it counts for retirement benefits) plus commission as a fixed percentage of turnover — not your full CTC. Whatever is not exempt is taxed as salary at your slab rate.
How to use this calculator
- Enter the leave encashment received — the amount your employer paid or quoted for unused leave.
- Enter your average monthly salary for the 10 months before leaving — basic plus DA, not gross CTC.
- Set your completed years of service — this drives the 30-days-a-year leave credit cap.
- Set the unavailed leave days being encashed, as per your employer's records.
The result lays out all four limits side by side, highlights the exempt amount, and shows the taxable balance that will be added to your salary income.
A worked example
₹8,00,000 received on retiring after 15 years, average salary ₹60,000 a month, 300 days of unused leave:
- A — actually received: ₹8,00,000
- B — statutory cap: ₹25,00,000
- C — 10 months' salary: 10 × ₹60,000 = ₹6,00,000
- D — leave salary: ₹2,000 a day × 300 days = ₹6,00,000 (300 days is within the 450-day cap for 15 years)
- Exempt: ₹6,00,000 · Taxable: ₹2,00,000
Here limits C and D tie as the least, so ₹2,00,000 of the payout is taxed as salary at the retiree's slab rate.
No. Leave encashed while you continue in the same job is fully taxable as salary for everyone, government or private. The section 10(10AA) exemption applies only on retirement or on otherwise leaving the job. Relief under section 89 may soften the slab impact of a large in-service payout.
Yes. Central and state government employees get their entire retirement leave encashment exempt under section 10(10AA)(i), with no monetary ceiling. The least-of-four computation on this page applies to everyone else, including PSU and private-sector employees.
It is a lifetime cap, raised from ₹3,00,000 with effect from 1 April 2023. Exemptions claimed across different employers over your career all draw down the same ₹25,00,000. Like all statutory limits, it is set by the government and can be revised.
The tax computation ignores the excess. For limit D, your leave entitlement is recalculated at a maximum of 30 days per completed year of service — 15 years means at most 450 creditable days — even if your employment terms grant 40 or 45 days a year.
Yes. Courts have held that "retirement" in section 10(10AA) includes leaving service by resignation. The same least-of-four computation applies. Encashment received by a deceased employee's legal heirs is not taxed as their salary at all.