Leave Encashment Tax Calculator
Government employees get full exemption. Private employees get up to ₹25 lakh. Resignation: no exemption. Calculate net proceeds for every scenario and plan when to encash.
Scenario Comparison
| Scenario | Exemption | Taxable | Tax | Net |
|---|---|---|---|---|
| Retirement | ₹7,20,000 | ₹0 | ₹0 | ₹7,20,000 |
| Resignation | ₹0 | ₹7,20,000 | ₹0 | ₹7,20,000 |
| Death | ₹7,20,000 | ₹0 | ₹0 | ₹7,20,000 |
Leave Encashment Tax Rules (2026)
Government Employees
Full exemption on retirement or death. No ₹25 lakh limit. Resignation: taxable as salary.
Private Sector: Retirement
Exemption is least of: ₹25 lakh, actual amount, 10 months' salary, or cash equivalent of leave (max 30 days/year).
Private Sector: Resignation
Fully taxable as salary income. No exemption. Taxed in the year of receipt at your marginal slab rate.
Private Sector: Death
Taxable in hands of legal heirs. Some exemption available up to ₹25 lakh limit if not already exhausted.
₹25 Lakh Limit (Budget 2023)
The exemption limit was raised from ₹3 lakh to ₹25 lakh in Budget 2023. This is a lifetime limit across all employers.
10 Months' Salary Calculation
Average of last 10 months' basic + DA. If DA is not part of salary, use basic only.
Leave encashment rules: the complete picture
Leave encashment is one of the most misunderstood benefits in Indian employment. The tax treatment depends on who you work for, when you encash, and how much you have accumulated.
Government employees
Central and state government employees enjoy the most favorable treatment: full exemption on retirement or death. There is no ₹25 lakh limit. The entire leave encashment amount is tax-free. This is a significant advantage over private sector employees.
Private sector employees: retirement
On retirement or superannuation, private sector employees can claim an exemption. The exempt amount is the least of four values:
- ₹25 lakh (lifetime limit, raised from ₹3 lakh in Budget 2023)
- Actual amount of leave encashment received
- 10 months' average salary (basic + DA)
- Cash equivalent of unavailed leave (30 days per year of service)
Private sector employees: resignation
On resignation, there is no exemption. The entire amount is taxable as salary income in the year of receipt. If you are close to retirement, consider negotiating a deferred encashment or waiting until retirement to claim the exemption.
Death of employee
For government employees, leave encashment on death is fully exempt. For private sector, it is taxable in the hands of legal heirs, though some exemptions may apply depending on the amount and whether the ₹25 lakh limit was already exhausted.
Disclaimer: This calculator uses current Indian tax laws (FY 2026-27). The ₹25 lakh exemption limit was introduced in Budget 2023 and applies to leave encashment on retirement or superannuation. Government employee rules vary by service conditions and state. For exact tax liability and exemption calculations, consult a chartered accountant or your employer's HR department.
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