Leave salary/ leave encashment calculator
Your employing organization may allow you various types of leaves. The labor laws in India mandate certain organizations to allow minimum paid leaves in a year to their employees. However, the employees don't need to avail of all the leaves in that particular year. Employees may avail such leaves, or in case the leaves are not availed, then such leaves may:
- Lapse
- Carried forward and used/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 regarding the amount received by an employee as leave encashment
Tax exemption for leave salary or leave encashment
Leave 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 the least of the following:
- INR 25,00,000
- Actual Leave encashment received
- Average salary of last 10 months * 10 months
- Cash equivalent of not availed leave [unutilized leave in months (considering maximum 30 days leave per year) * Average salary of last 10 months]
Here, unutilized leave = Leave allowed (no. of years of service *30) - Leave taken
Notes:- 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 a 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 25,00,000
- Where leave salary is received in any earlier year from a former employer and again received from another employer in a later year. The limit of INR 3,00,000 25,00,000 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 calculate leave encashment exemption:
- Select the assessment year(A.Y.) for which you want your taxes to be calculated
- (if you earned the leave salary in the year 2022-23, then your A.Y. shall be 2023-24)
- Select the type of employee depending on the organization you belong to.
- Enter the entire leave salary you received in the given year. However, the 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)
Leave encashment formula
The leave encashment formula is [(Basic Salary + Dearness Allowance) / 30] * Number of EL or earned leaves.
