BooksIQGovernment employees: leave encashment on retirement fully exempt. Non-government: least of actual, average salary (last 10 months) × 10, cash equivalent of unutilised leave (max 30 days per completed year), or ₹25,00,000 (raised from ₹3 lakh w.e.f. 1-Apr-2023). Encashment DURING service is fully taxable.
Key points
- §10(10AA) exempts leave salary (leave encashment).
- (i) CENTRAL/STATE GOVERNMENT employees — leave encashment at RETIREMENT is FULLY EXEMPT.
- (ii) OTHER employees, on retirement or resignation — exempt to the LEAST of: actual leave encashment received;
- average salary (Basic + DA) of the last 10 months × 10 months;
- cash equivalent of unutilised earned leave (limited to 30 days per completed year of service);
- or the notified ceiling of ₹25,00,000 (raised from ₹3,00,000 w.e.f. 1-Apr-2023 by Notification 31/2023).
- The ₹25 lakh ceiling is a LIFETIME aggregate.
- Leave encashed DURING the continuance of service is FULLY TAXABLE (relief under §89 may be claimed).
Reference: §10(10AA) ITA 1961 read with Notification 31/2023 — under ITA 2025 (FY 26-27 onwards), this is §19
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