Leave Encashment Calculator
Work out how much of your unused leave is tax-exempt and how much is taxable. The calculator applies the four-fold test under Section 10(10AA) for non-government employees and the full exemption for government employees, so you know what to expect on your final settlement.
What This Calculator Tells You
The interesting question about leave encashment is rarely "what is the gross amount?" Multiply the daily wage by the unused leave days and you have that number in a minute. The real question, and the one that surprises people on their last day, is how much of it is actually tax-free.
This calculator works that out. It takes your basic plus DA, the leaves you have left unused, your years of service, and whether you are leaving service or still in the job, then applies the test under Section 10(10AA) of the Income-tax Act to show what is exempt, what is taxable, and where each number comes from.
How to Use It
- Pick your employee type. Choose Government if you work for the central or state government or an authority covered under the government employee category. Anyone else, including PSU and bank employees for this purpose, is Non-Government.
- Choose when you are encashing. If you are still employed and your company is paying out accumulated leave, choose During Service. If you are retiring or resigning, choose Retirement or Resignation.
- Enter your average Basic + DA for the ten months immediately before separation. This is the figure the law uses, not your total CTC and not just basic salary.
- Enter the number of unused leave days you are encashing, and the leave entitlement per year your employer offers. If your company gives you more than 30 days a year, the calculator adjusts the count to the statutory 30-day basis automatically.
- Add your completed years of service. This affects the upper cap on how many days the law lets you treat as exempt.
- Click Calculate. The right panel shows the total encashment, the exempt portion, and the taxable balance.
How Leave Encashment Is Taxed
The tax treatment depends on two things: who you work for, and when you take the money.
If you are a government employee and you receive leave encashment at retirement or superannuation, the whole amount is tax-free. There is no cap.
If you are a non-government employee and you receive it at retirement or resignation, Section 10(10AA) exempts the least of four figures:
- The actual amount your employer pays you.
- Ten months of your average Basic + DA, taken from the ten months immediately before separation.
- The cash value of leave to your credit, where the count is capped at 30 days for each completed year of service. This is why the calculator asks for years of service and leave-per-year separately.
- The statutory ceiling of Rs 25,00,000. This was raised from Rs 3,00,000 in May 2023 and applies to leave encashment received from 1 April 2023 onwards.
Whichever of these four is smallest is your exemption. Anything above that gets added to your taxable salary for the year, and your employer deducts TDS on it under Section 192 like any other component.
If you are encashing leave while still in service, none of this exemption applies. The entire amount is taxable as salary, regardless of whether you work for the government or a private company. This trips people up most often during year-end leave payouts.
Two Things Worth Knowing Before You Calculate
First, the Rs 25 lakh ceiling is a lifetime limit, not a per-employer limit. If you have already claimed leave encashment exemption against this section from a previous job, only the unused portion of the Rs 25 lakh is available to you the next time. This catches people changing jobs late in their careers.
Second, the exemption applies under both the old and new tax regimes. You do not have to be in a particular regime to claim it. This is one of the few salary components where the choice of regime genuinely does not matter.
Where Leave Encashment Sits in Your Final Settlement
For a salaried person, the full-and-final settlement at separation usually has three significant pieces: leave encashment, gratuity, and any pending salary or notice-pay adjustment. The taxable portion of leave encashment is added to your salary income for the year and shows up in your Form 16. The exempt portion does not. If you are also receiving severance pay, that has its own rules and is treated separately.
If you are still some way from retirement and want to see the broader picture, the CTC Calculator shows how your monthly pay breaks down today, and the EPF Calculator projects what your provident fund corpus will look like at retirement. Together they give you a fair sense of the lump sums you are walking away with. For businesses processing F&F settlements at scale, TankhaPay's payroll software handles the leave balance, exemption math, and TDS in one place rather than as a manual end-of-service exercise.
FAQs
01. Is leave encashment taxable in India?
It depends on when you receive it and who pays you. Leave encashment paid during your employment is fully taxable as salary. Leave encashment received at retirement, superannuation, or resignation is fully exempt for central and state government employees, and partially exempt for non-government employees up to a lifetime cap of Rs 25 lakh under Section 10(10AA).
02. How is the leave encashment exemption calculated for private employees?
For non-government employees at separation, the tax-free amount is the least of four figures: the actual encashment received, ten months of average basic plus DA, the cash equivalent of leave to credit at a maximum of 30 days per completed year of service, and the Rs 25 lakh statutory ceiling. Anything beyond the least of these four is taxable as salary.
03. What is the current exemption limit for leave encashment?
The lifetime exemption ceiling under Section 10(10AA) for non-government employees is Rs 25,00,000. This was raised from Rs 3,00,000 with effect from 1 April 2023 and continues to apply. Government employees are fully exempt with no cap.
04. Is leave encashment exempt under the new tax regime?
Yes. The Section 10(10AA) exemption on leave encashment at separation applies under both the old and new tax regimes. You do not have to switch regimes to claim it.
05. Is leave encashment received during service exempt?
No. Leave encashment received while you are still employed, such as a year-end payout for accumulated leave, is fully taxable as salary. The exemption applies only when you actually separate from the employer.
06. Does the Rs 25 lakh limit reset with each employer?
No. The Rs 25 lakh ceiling is a lifetime limit. If you have already claimed an exemption against this section from a previous employer, only the remaining balance is available against future leave encashment receipts.