Leave Encashment Calculator
Calculate the taxable and tax-exempt portion of your leave encashment at the time of retirement or resignation.
Employment Details
Budget 2023 Update
The tax-exemption limit for leave encashment for non-government employees has been increased from ₹3 Lakhs to ₹25 Lakhs.
Calculation Breakdown
Understanding Leave Encashment Taxation
Leave encashment is the amount of money an employee receives in exchange for the period of leave not taken. The taxation rules for this amount depend on whether the employee is a government or non-government employee.
Govt Employees
Leave encashment received at the time of retirement or resignation is fully exempt from income tax for Central and State Government employees.
Private Employees
For non-government employees, the exemption is limited to the least of:
- Statutory limit of ₹25,00,000.
- Actual leave encashment received.
- Average salary of the last 10 months.
- Salary for the leave balance (capped at 30 days per year of service).
Important Note
Leave encashment received during service is fully taxable for all employees. The exemptions mentioned above only apply at the time of retirement or resignation.
Frequently Asked Questions
What is the new tax-free limit for leave encashment?
As per the Union Budget 2023, the tax-exemption limit for leave encashment for non-government salaried employees has been increased from ₹3 Lakhs to ₹25 Lakhs.
Is leave encashment taxable if I resign?
Yes, the same rules apply for resignation as they do for retirement. Government employees are fully exempt, while private employees get exemptions based on the four limits mentioned above.
How is 'Salary' defined for leave encashment?
For the purpose of leave encashment, 'Salary' means Basic Salary + Dearness Allowance (DA). It does not include other allowances like HRA or LTA.
What if my company allows 45 days of leave per year?
For tax exemption purposes, the Income Tax Act only considers a maximum of 30 days of leave for every year of service. Any leave balance calculated beyond this limit will be taxable.