Leave Encashment Calculator — Tax Exemption FY 2025-26
Calculate your leave encashment tax under Section 10(10AA). Enter your service details to see the exact exempt and taxable amounts, compare government vs private sector treatment, and understand why encashment during service is fully taxable. Updated for FY 2025-26 with the ₹25 lakh limit.
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How to Use This Calculator
Leave Encashment Tax tab
Enter your years of service, earned leave balance (in days), monthly basic + DA, and employment type (private, government, or PSU). The calculator shows the gross encashment, all 4 exemption conditions under Section 10(10AA), the exempt amount, taxable amount, and tax payable at your selected slab rate.
Govt vs Private tab
Enter the same parameters to see a side-by-side comparison of how leave encashment is taxed for government employees (fully exempt) versus private sector employees (subject to the 4-condition cap). See the exact tax difference and understand which conditions limit your exemption.
During Service Warning tab
If you are encashing leave while still employed, enter the amount and your slab rate. This tab shows the full tax liability — because leave encashment during service has NO exemption under Section 10(10AA). It is fully taxable as salary income.
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The Formula
Leave encashment tax exemption under Section 10(10AA) is calculated as the minimum of four conditions for private sector employees:
1. Actual leave encashment received
= Leave balance (days) × Daily salary
where Daily salary = Monthly basic + DA ÷ 30
2. Statutory limit: ₹25,00,000
(increased from ₹3,00,000 by Finance Act 2023)
3. 10 months’ average salary
= 10 × Average monthly basic + DA (last 10 months)
4. Cash equivalent of unavailed earned leave
= MIN(leave balance, 30 × years of service) × Daily salary
(capped at 30 days per completed year of service)
Taxable Amount = Gross encashment − Exempt amount
Tax Payable = Taxable amount × Slab rate
Government Employees: Fully exempt, no conditions, no cap.
The exemption applies only on retirement, superannuation, resignation, or death. Leave encashment during service is fully taxable at slab rates with no exemption.
Example
Rajesh — Private sector IT manager, 20 years service, retiring with 240 days leave
Rajesh is 58, works at a private IT company in Pune, and is retiring with a monthly basic + DA of ₹60,000 and 240 days of accumulated earned leave.
Step 1: Calculate gross encashment
Step 2: Apply the 4 exemption conditions
Step 3: Determine exempt and taxable amounts
Rajesh’s entire leave encashment of ₹4,80,000 is tax-free because the actual amount is the lowest of the 4 conditions. Had he been a government employee, the result would be identical — but without any of the 4-condition checks.