Leave Encashment: Computation & Tax Exemption Slabs
Leave encashment refers to the statutory monetary payout received against accumulated, unavailed earned or privilege leaves (EL/PL).
Encashment = (Average Basic Pay + DA ÷ 30) × Unutilized Leave Days
1. Enhanced ₹25 Lakh Tax Exemption Cap
By gazette notification, the Central Board of Direct Taxes (CBDT) enhanced the lifetime statutory tax exemption limit for non-government private employees under Section 10(10AA)(ii) from ₹3,00,000 to ₹25,00,000 upon retirement or resignation.
2. Encashment During Active Employment
Any leave encashment received by an employee while continuing in active service is 100% taxable as salary income in that financial year, irrespective of whether they belong to government or private sector.