Leave Encashment Tax Relief up to ₹25 Lakhs
Are You Claiming Your Retirement Benefits Correctly?
Many employees unknowingly pay excess tax on leave encashment received at the time of retirement or resignation. Under Section 10(10AA) of the Income Tax Act, you are entitled to significant tax exemptions that can save you lakhs of rupees.
New Update: The lifetime exemption limit for private-sector employees has been enhanced to ₹25,00,000.
Eligibility & Exemptions
🏛️ Gov. Employees
100% Tax-Free: Leave encashment received at retirement is fully exempt from tax without any upper limit.
🏢 Private Sector
Up to ₹25 Lakhs: Exemption available for non-government employees at the time of retirement or resignation.
How is Exemption Calculated?
The exempt amount is the least of the following four factors:
| Criteria | Description |
|---|---|
| Actual Received | The total amount paid by your employer. |
| Statutory Limit | Max limit of ₹25,00,000 (Lifetime). |
| Average Salary | Last 10 months' average basic salary + DA. |
| Earned Leave | Cash equivalent of leave balance (Max 30 days/year). |
⚠️ Critical Tax Warnings
- During Employment: Any leave encashed while still in service is fully taxable.
- Cumulative Limit: The ₹25 Lakh limit is a lifetime ceiling across all employers.
- Timing Matters: Exemption applies only during Retirement, Resignation, or Termination.
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