Leave salary/ leave encashment calculator
Your employing organisation may allow you various types of leaves. The labour laws in India mandate certain organisations to allow minimum paid leaves in a year to their employees. However, it is not mandatory for the employees to avail all the leaves in that particular year. Employees may avail such leaves, or in case the leaves are not availed, then such leaves may:
- either lapse or
- Carry forward and use/accumulated for the future or
- Encashed each year or at the time of retirement/resignation.
Such options vary from employer to employer. The payment received on encashment of leaves not availed would form part of the salary. However, section 10(10AA) of the Income-tax Act provides an exemption in respect of the amount received by an employee as leave encashment either at the time of retirement.
Tax exemption for leave salary or leave encashmentLeave encashment received while in service or at the time of termination.
There is no exemption if an employee encashes leaves while he is still in service or at the time of termination (other than on account of retirement). Therefore, the entire amount received shall be taxable. Note that relief under section 89 is available in such a case.Leave encashment received at the time of your retirement, whether by way of superannuation or otherwise
- Government employees: Leave salary received at the time of retirement is fully exempt from tax.
Non-government employees: Leave salary received at the time of retirement is exempt from tax to the extent of least of the following:
- (i) INR 3,00,000
- (ii) Actual Leave encashment received
- (iii) Average salary of last 10 months * 10 months
- (iv) Cash equivalent of unavailed leave [unutilised leave in months (considering maximum 30 days leave per year) * Average salary of last 10 months]
Here, unutilised leave = Leave allowed (no. of years of service *30) - Leave takenNotes:
- Salary for computing exemption means basic salary + dearness allowance (in terms of employment for retirement benefits) + commission expressed as a fixed percentage of turnover.
- If you receive leave salary from more than one employer in the same financial year, then the total amount of leave salary exempt from tax cannot exceed INR 3,00,000
- Where leave salary is received in any earlier year from a former employer and again received from another employer in a later year, then the limit of INR 3,00,000 will be reduced by the amount that was exempted earlier.
You may use a taxable leave salary calculator to compute your tax on leave encashment received.
How to use the calculator:
- Select the assessment year(A.Y.) for which you want your taxes to be calculated
- (if you earned the leave salary in the year 2020-21, then your A.Y. shall be 2021-22)
- Select the type of employee depending on the organisation you belong to.
- Enter the entire amount of leave salary received by you in the given year. However, leave salary received during retirement must be entered in the last box.
- Enter your employment period in years. Any fraction in months should be ignored. You may also compute the same by clicking on calculate. You will be required to enter your joining date and date of termination of service.
- Next, key in your last 10 months salary and enter the average of that in the next box.
- Enter the number of days of leaves you were entitled to during your entire service period
- Enter the number of days of leaves availed/encashed during your entire employment period.
- Now enter the leave salary if it was exempted during any earlier years. Following these steps will provide you with your exempted and taxable leave salary.
Note: Please enter ‘0’ where any field does not apply to you. (the final answer doesn’t change in the calculator)