Home Leave Rules Leave Encashment Tax Exemption for Government Employees - Income Tax Rule 10(10AA)

Leave Encashment Tax Exemption for Government Employees – Income Tax Rule 10(10AA)

For tax treatment of leave encashment u/s 10(10AA) of Income Tax Act 1961 the employees has been classified into two types :

  1. Government Employees
  2. Non-Government Employees

Government Employees

As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is exempt from tax.

In Simple, any payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt.

Non-Government Employees

In the hands of non-Government employee exemption will be least of the following:

Least of the following shall be exempt from tax:

a) Amount actually received

b) Unutilized earned leave* X Average monthly salary

c) 10 months Average Salary**

d) Rs. 3,00,000

* While computing unutilized earned leave, earned leave entitlements cannot exceed 30 days for each completed year of service rendered to the current employer

** Average salary = Average Salary*** of last 10 months immediately preceding the retirement

***Salary = Basic Pay + DA (to the extent it forms part of retirement benefits)+ turnover based commission

Ready Reckoner

Sl. NoLeave encashmentTaxability for Government EmployeesTaxability for Non-Govt Employees
1During period of serviceFully taxableFully taxable
2At the time of retirement or separation (other than on account of Termination)Fully exemptLeave Exemption is least of the following:
1) Rs 3,00,000
2) Leave encashment amount actually received
3) 10 months’ salary (on the basis of average salary of last 10 months ) *
4) Cash equivalent to leave to the credit of employee at time of retirement **
3At the time of termination of employeeFully taxableFully taxable

Leave Encashment Calculator

Check here for Leave Encashment Calculator – Earned Leave & Half Pay Leave for Government Employees

Subscribe to our newsletter

To be updated with all the latest news, Government Orders, and special announcements. Once subscribed click activate link from your inbox.

Follow Us

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest