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For individualsRates reviewed September 2026

Leave Encashment Calculator under Section 10(10AA)

A leave encashment calculator works out how much of the money your employer pays for unavailed earned leave escapes tax. The exemption sits in Section 11 read with Schedule II of the Income-tax Act, 2025, which replaced the Income-tax Act, 1961 from 1 April 2026 and carried forward what taxpayers still search for as Section 10(10AA).

The number that decides most claims is the ceiling for non-government employees. It was lifted from ₹3,00,000 to ₹25,00,000 by Notification No. 31/2023 dated 24 May 2023, with effect from 1 April 2023. That ceiling is a lifetime figure across every employer, reduced by whatever exemption you have already claimed in an earlier year, not a fresh allowance each time you change jobs.

Two distinctions decide whether you get anything at all. Encashment received while you are still in service is fully taxable salary with no exemption, regardless of who employs you. Encashment received on retirement or resignation is fully exempt for a government employee, and for everyone else it is exempt only to the extent of the least of four amounts.

The exemption is a salary exemption, so it is withdrawn under the default new regime in the same way as house rent allowance. If you have not opted into the old regime for the year, the whole payout is taxed at slab rates and this calculator shows you the size of what the regime choice costs.

Leave Encashment Calculator

Public sector undertakings, banks and statutory corporations count as non-government here.

Encashment taken during service is fully taxable for every employee.

Basic salary, DA forming part of retirement benefits and turnover commission only.

₹
₹

Whole years only. A part year is ignored rather than rounded up.

years
days

The ₹25,00,000 ceiling is a lifetime figure across every employer.

₹

Exempt leave encashment

₹6,40,000

Limb 4, cash equivalent of unavailed leave is the binding limb, on the old regime

Average monthly salary used₹2,667 a day on a 30 day month
₹80,000
Limb 1, leave encashment received
₹15,00,000
Limb 2, ten months average salary10 x ₹80,000
₹8,00,000
Limb 3, ceiling still availableLifetime ceiling of ₹25,00,000, none used yet
₹25,00,000
Limb 4, cash equivalent of unavailed leave240 days counted, capped at 30 days for each of 8 completed years
₹6,40,000
Basis of the exemptionThe smallest of the four limbs
Limb 4, cash equivalent of unavailed leave
Exempt leave encashment
₹6,40,000
Taxable leave encashment
₹8,60,000
Share of the payout that escapes tax
42.67%
  • This exemption is a salary exemption and is not available under the new tax regime, which is the default regime. Unless you opted into the old regime for the year the whole payout is taxed at slab rates.
  • Only 240 of the 300 days encashed can be counted, because the fourth limb allows 30 days for each of 8 completed years.
  • The ₹25,00,000 ceiling was notified by Notification No. 31/2023 dated 24 May 2023 with effect from 1 April 2023, and applies across every employer over a working life.
  • Under the Code on Social Security definition of wages, allowances above 50% of total remuneration are added back into wages, which can raise the payout the exemption is measured against.

The formula

Exempt leave encashment = Least of (amount actually received, 10 months average salary, ₹25,00,000 less exemption already used, cash equivalent of unavailed leave limited to 30 days for each completed year)

Average salary
Average of basic salary, dearness allowance forming part of retirement benefits and turnover commission drawn over the ten months immediately preceding retirement.
10 months average salary
Ten times that monthly average, which is the limb that binds most long-service claims because it does not grow with the years served.
₹25,00,000 ceiling
The lifetime aggregate ceiling for non-government employees, notified on 24 May 2023 with effect from 1 April 2023, reduced by exemption already allowed in any earlier year.
Cash equivalent of unavailed leave
Leave standing to your credit valued at the average daily salary, counting no more than 30 days of leave for each completed year of service.
Completed years
Whole years of service actually completed with that employer. A part year is ignored rather than rounded up, unlike the gratuity rounding rule.

Government employees receive leave encashment on retirement fully exempt and none of the four limbs applies to them. Payment to the legal heirs of an employee who dies in service is not taxed as the employee's salary.

How to calculate it

  1. 1

    Check when the money was paid

    Encashment taken while you are still working is fully taxable salary and no exemption is available. Only encashment on retirement, resignation or superannuation reaches the least-of-four test.

  2. 2

    Confirm whether you are a government employee

    Central and state government employees receive the whole amount exempt. Employees of public sector undertakings, banks and private employers are non-government employees for this purpose and must apply the four limbs.

  3. 3

    Build the ten month average salary

    Average basic salary, dearness allowance that forms part of retirement benefits, and commission at a fixed percentage of turnover across the ten months immediately before you left. No other allowance enters the figure.

  4. 4

    Cap the leave at 30 days a completed year

    Count the leave days actually encashed, then compare them against 30 days multiplied by your completed years of service. The lower of the two is valued at the average daily salary to give the fourth limb.

  5. 5

    Reduce the ceiling by earlier claims

    The ₹25,00,000 limit is a lifetime figure. Subtract any exemption already allowed to you under this head in an earlier year with this or any other employer before applying the third limb.

  6. 6

    Take the least and tax the balance

    The exemption is the smallest of the four figures. Whatever is left is salary, taxed at your slab rate, and your employer deducts tax on it in the month the payment is made.

Leave encashment exemption, FY 2026-27

Leave encashment exemption, FY 2026-27
SituationTreatment
Government employee, on retirementFully exempt with no ceiling
Non-government employee, on retirementExempt to the least of the four limbs, within ₹25,00,000
Any employee, encashment during serviceFully taxable salary, no exemption
Lifetime ceiling for non-government employees₹25,00,000 across all employers, notified 24 May 2023
Leave counted for the fourth limb30 days for each completed year of service
Paid to legal heirs on death in serviceNot taxed as the employee's salary
Availability under the default new regimeNot available, the whole payout is taxable

Worked example

Average monthly salary, last ten months
₹80,000
Leave encashment received on retirement
₹15,00,000
Completed years of service
8 years
Unavailed leave days encashed
300 days
Exemption already used in earlier years
Nil
Employee type
Non-government, old regime
  • Limb 1, amount actually received = ₹15,00,000
  • Limb 2, ten months average salary = 10 x ₹80,000 = ₹8,00,000
  • Limb 3, ceiling available = ₹25,00,000 less nil already used = ₹25,00,000
  • Limb 4, leave is capped at 30 x 8 = 240 days against the 300 days encashed
  • Average daily salary = ₹80,000 / 30 = ₹2,667, so limb 4 = ₹2,667 x 240 = ₹6,40,000

Exempt leave encashment = ₹6,40,000 and taxable leave encashment = ₹8,60,000. The 30 day cap is the binding limb, not the ₹25,00,000 ceiling.

Frequently asked questions

₹25,00,000. The Central Government notified that figure by Notification No. 31/2023 dated 24 May 2023 with effect from 1 April 2023, raising it from the ₹3,00,000 that had stood since 2002. It is a lifetime aggregate across every employer, reduced by any exemption already allowed to you under this head in an earlier year.
Yes, in full. Encashment of leave while you remain in service is ordinary salary in the year you receive it and attracts no exemption at all, whether you work for the government or a private employer. Only encashment on retirement, resignation or superannuation reaches the exemption test, which is why the timing of the payment matters more than its size.
Take the least of four amounts: the leave encashment actually received, ten months of average salary, the ₹25,00,000 ceiling reduced by exemption already used, and the cash equivalent of unavailed leave counting no more than 30 days for each completed year of service. Whatever survives as the smallest of the four is exempt and the balance is taxed as salary at your slab rate.
Not on encashment received at retirement. Central and state government employees receive the whole amount exempt with no ceiling and no least-of test. The concession does not extend to employees of public sector undertakings, nationalised banks or statutory corporations, who are treated as non-government employees and must apply the four limbs and the ₹25,00,000 ceiling.
Basic salary, dearness allowance to the extent it forms part of retirement benefits, and commission computed as a fixed percentage of turnover, averaged over the ten months immediately preceding your last day. House rent allowance, conveyance, special allowance, bonus and perquisites are all excluded, so the average used here is usually far below your monthly cost to company.
No. The exemption is one of the salary exemptions the new regime withdrew, and the new regime is the default. To claim it you must opt into the old regime for the year in which the encashment is received, and that choice has to be weighed against the lower slab rates and the ₹75,000 standard deduction the new regime offers on the whole of your salary.
They change the base rather than the exemption. Since the Code on Social Security, 2020 came into force on 21 November 2025, excluded allowances are restricted to 50% of total remuneration, so a salary structure heavy on allowances now yields higher statutory wages. Where encashment is paid on wages so defined the payout rises, but the ₹25,00,000 ceiling and the four limbs are unchanged.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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