Leave Encashment Calculator
Key takeaways
- The full ₹3.20 L encashment is tax-exempt under Section 10(10AA) at these inputs.
- The amount received and the 30-days-per-year leave credit both work out to the same ₹3.20 L — the binding minimum of the four limbs.
- Encashing 150 days instead of 120, the exempt amount would be ₹4.00 L and the taxable amount ₹0.00.
The four exemption limbs — the smallest one applies
The exempt amount is the shortest bar here. Limb values come from the same salary, days and years entered above; the ₹25,00,000 ceiling is fixed by statute.
About the Leave Encashment Calculator
The Leave Encashment Calculator estimates how much of a lump-sum leave encashment — paid when employment ends through resignation or retirement — is exempt from income tax under Section 10(10AA), for a non-government employee. A government employee's leave encashment is fully exempt under a separate and simpler rule that this page does not cover. Figures are as applicable for FY 2025-26 and 2026-27; the Income-tax Act, 2025 renumbers Section 10(10AA) from April 2026 without changing the limit.
Enter average monthly salary (basic plus dearness allowance only), the number of leave days being encashed, and total years of service. The exemption is the SMALLEST of four separately computed limbs: the amount actually received; a flat ₹25,00,000 statutory ceiling; ten months' average salary; and the cash equivalent of leave capped at 30 days for each year of service. However generous three of them look, the exemption is never more than the fourth.
"Amount received" is the full lump sum before any exemption, computed as salary ÷ 30 × days. "Exempt amount" is the tax-free portion. "Taxable amount" is the remainder, which is added to taxable salary for the year and taxed at your normal slab rate — this page does not compute that follow-on tax; the Income Tax Calculator does. The four bars show the four limbs on one scale, so which one binds is visible at a glance: the exempt amount is always the shortest bar.
The "Annual leave entitlement" field is captured for reference and does NOT change the result. The fourth limb always assumes the law's own maximum recognition of 30 days per year of service, capped at the days actually being encashed. The textbook version of that limb uses leave genuinely left unused across a career — data this calculator does not collect — so this is the standard simplification, and it can overstate the exempt amount for someone who used most of their leave along the way.
Frequently asked questions
How is leave encashment exemption calculated under Section 10(10AA)?
The exemption is the least of four figures: (a) the amount actually received, which is monthly salary ÷ 30 × days encashed; (b) ₹25,00,000; (c) ten months' average salary; and (d) salary ÷ 30 × min(30 × years of service, days encashed). Taxable amount is the amount received minus that exemption, and it can never be negative because limb (a) is one of the four being minimised.
What is the ₹25,00,000 limit?
It is the statutory ceiling on this exemption, raised from ₹3,00,000 by notification in 2023 and applicable for FY 2025-26 and 2026-27. In law it is a lifetime ceiling across all employers; this calculator applies it as a per-calculation cap, so if you have claimed the exemption on an earlier exit your remaining room is smaller than what this page shows.
Which salary components count?
Basic salary plus dearness allowance, where the DA forms part of retirement benefits, plus commission on a fixed percentage of turnover where applicable. House rent allowance, bonuses and other allowances are excluded. Entering full CTC instead of basic plus DA will overstate every limb and therefore the exemption.
Why does changing the annual leave entitlement do nothing?
Because the fourth limb is defined by the statute, not by an employer's policy — Section 10(10AA) recognises at most 30 days of leave for each completed year of service, whatever the employer allows. The field is there because people expect to enter it, and the page states plainly that it does not affect the arithmetic.
Is leave encashment taxable while still employed?
Yes. Section 10(10AA) exempts leave encashed at retirement or on leaving service. Leave encashed during continuing employment is fully taxable as salary, with no exemption, and this calculator does not model that case.
Does this apply to government employees?
No. Leave encashment received by a Central or State Government employee on retirement is fully exempt under a separate provision, so there is no four-limb minimum to compute. This page models the non-government case only.
Disclaimer: This calculator is for information and education only. It is not investment advice and not a recommendation, and it is not legal, tax or payroll advice. Statutory rates, wage ceilings and state rules such as professional tax and minimum wages change and vary; the employment contract, the employer’s payroll and the law in force decide the actual amounts. Every figure is computed solely by applying the formula and assumptions stated on this page to the inputs you entered.