Calculate tax-free leave encashment under Section 10(10AA). ₹25 L cap, four-limit rule, govt vs private — applied automatically. Free, India.
Leave Encashment Calculator Features
- Section 10(10AA) — Implements the four-limit rule precisely: ₹25L cap, 10× last salary, leave eligible (max 30 days/year), actual amount.
- Govt vs Private — Government employees → fully tax-free on retirement. Private employees → smallest of four limits is exempt.
- Active vs Retirement — Encashment while in service is fully taxable. Encashment on retirement / resignation gets the exemption.
- ₹25 L Lifetime — The ₹25 L cap is lifetime — across all employers. Tool flags how much of your cap remains.
How to Use Leave Encashment Calculator
Situation → salary → leaves → exemption in four steps.
- Choose Situation — Govt vs private; encashment on retirement vs while still working.
- Enter Details — Last 10-month average salary, leaves earned and used during service.
- See Four Limits — Tool computes all four Section 10(10AA) limits and picks the smallest.
- Tax Outcome — Tax-free amount, taxable amount, and a clear explanation of which limit kicked in.
Frequently Asked Questions
What is leave encashment under Section 10(10AA)?
When an employee resigns or retires with unused earned leave, employers pay cash for those days — that's leave encashment. Section 10(10AA) governs how much of it is tax-free. Government employees: 100% exempt at retirement. Non-government: smallest of four limits is exempt; the rest is taxable as 'salary'.
What changed about the ₹25 lakh cap?
The cap was raised from ₹3 lakh to ₹25 lakh by CBDT Notification No. 31/2023, effective 1 April 2023, applying to retirements / separations on or after that date. Before that, anything above ₹3 L was taxable; now ₹25 L is shielded — a major reform for senior private-sector employees.
Is the ₹25 lakh cap per employer or lifetime?
Lifetime — across all employers in your career. So if you claimed ₹10 L exempt at a previous job, only ₹15 L of your current encashment can be tax-free. The calculator has a 'cap already used' field — fill in your prior exempt encashment to get an accurate remaining-cap figure.
What are the four limits?
(1) ₹25 L statutory cap, (2) 10 × last drawn monthly salary (basic + DA), (3) salary equivalent of unutilised earned leave, capped at 30 days per completed year of service, (4) actual amount received. The smallest of these four is the exempt amount; everything beyond is taxable.
What if I encash leave while still employed?
Fully taxable as 'salary income' — no exemption applies, regardless of amount. Section 10(10AA) only kicks in on retirement or separation. Many companies allow mid-service encashment as a perk; just remember it's fully taxed and TDS will be deducted.
Are government employees treated differently?
Yes — Section 10(10AA)(i) gives Central / State government employees 100% tax exemption on leave encashment received at retirement. The four-limit rule and ₹25 L cap apply only to private and PSU employees. The calculator handles this automatically.
What counts as 'salary' for the 10× and daily-rate limits?
Basic salary plus Dearness Allowance forming part of retirement benefits, plus a fixed-rate commission if applicable. House rent allowance, conveyance, special allowances, performance bonuses — these don't count. Use your last 10 months' average for the calculation per Section 10(10AA)(ii).
Should I time my retirement to maximise the exemption?
If your leave balance × daily rate is high but you're below 10 years of service, waiting an extra year increases the leave-based limit (since it's '30 days × completed years'). For someone with 15+ years, the constraint is usually the ₹25 L cap or the actual amount. Run the calculator for both scenarios; small timing changes can save lakhs.
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