Retirement · component
Leave encashment
Leave encashed at retirement is exempt up to a ceiling; encashment during service is fully taxable.
How the taxable value is determined
For non-government employees the exemption on retirement is the least of ₹25,00,000, ten months' average salary, cash equivalent of unavailed leave, or the amount received. Encashment while in service is taxable in full.
Regime availability
- Old regime
- Available
- New regime
- Available
Documentation to keep
Leave balance record and the employer's computation.
Legal basis: Section 10(10AA), Income-tax Act
Frequently asked questions
Is leave encashment taxable in India?
Leave encashed at retirement is exempt up to a ceiling; encashment during service is fully taxable. For non-government employees the exemption on retirement is the least of ₹25,00,000, ten months' average salary, cash equivalent of unavailed leave, or the amount received. Encashment while in service is taxable in full.
Does the exemption apply under the new tax regime?
Under the old regime this treatment is available; under the new regime it is available. Legal basis: Section 10(10AA), Income-tax Act.
What records should I keep for leave encashment?
Leave balance record and the employer's computation.
Related tools & guides
Reflects provisions in force for FY 2026-27; verify against the latest government publications (incometax.gov.in). Information, not tax advice.