Leave Encashment Tax
Tax-free leave encashment — ₹25L lifetime exemption
Employer Type
Service & Leave Details
Number of leave days you'll encash
Leave entitlement per year as per policy — max 30 used in Rule 2 & 3
Salary Basis
Total wages (basic+DA+comm.) of last 10 months ÷ 10
Tax Cap & Prior Claims
₹25L is a lifetime aggregate cap. Deduct prior receipts from any employer.
Your Marginal Tax Rate
Leave Encashment Result
Total Amount
₹1.80 L
Tax-Free
₹1.80 L
Taxable
₹0
Section 10(10AA) — Four-Rule Test
Tax-free amount = minimum of these four values
Rule 1 — Actual amount received ← Minimum (exemption)
90 days × ₹2,000/day
₹1,80,000
Rule 2 — Formula (30-day × years basis)
Avg salary × 15 days × 10 yrs ÷ 30
₹3,00,000
Rule 3 — Earned leave cap ← Minimum (exemption)
Min(leave balance, 15×10 days) × daily rate
₹1,80,000
Rule 4 — Statutory cap (₹25L − prior claims)
₹25,00,000 − ₹0 prior = ₹25,00,000
₹25,00,000
Detailed Calculation
Daily rate
Avg salary ÷ 30
₹2,000/day
Leave days
90 days
Total encashment amount
₹1,80,000
Tax-free portion
Minimum of 4 rules under Sec 10(10AA)
₹1,80,000
Taxable portion
Nil
₹0
Tax saved on exempt portion
At 30% slab + 4% cess
₹56,160
CA Notes
→ ₹25L cap is a lifetime aggregate across all employers. Track prior claims carefully.
→ Encashment during service is always fully taxable — the exemption only applies at resignation/retirement.
→ Encashment on death: full amount exempt in hands of nominee.
→ The salary basis for Rule 2 & 3 is average of last 10 months, not just last drawn — important if salary varied.
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FAQ
Leave Encashment Tax — FAQ
Common questions about this calculator
For private employees: minimum of actual encashment, 10 months' basic, or ₹25L lifetime limit. For government employees, it's fully exempt.
Calculations are approximate and for educational purposes only. Excludes surcharge for income above ₹50L. Consult a Chartered Accountant for personalised tax advice.