At retirement, leave encashment is the most tax-favorable - both private (₹25L cap exempt) and govt (full exempt) get exemption. Plan accumulation of leaves toward retirement: maximum exempt amount is the LEAST of (₹25L, 10 months avg salary, leaves x ₹500 x avg salary, actual). Plan accordingly.
When to use this
Use when nearing retirement (within 12-18 months): forecast leave-encashment tax for the year you retire, decide whether to take additional leave vs encash (depends on tax position), plan retirement-year ITR with leave encashment exemption.
Frequently Asked Questions
Should I take leave or encash before retirement?
Depends on tax: if encashment + other income keeps you below ₹25L exempt cap, encash. If you're already over the cap (high earner), taking leave (no tax) might be better than encashing (taxed at slab). Run both scenarios in our calculator.
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