Leave Encashment Guide
Leave encashment is the payment you receive from your employer for unused leaves when you resign or retire.
The tax treatment of leave encashment has specific rules under the Income Tax Act.
Key Points About Leave Encashment:
- 300-Day Limit: Under Section 10(10A), up to 300 days of leave can be exempted from tax, but ONLY for the first encashment in your lifetime.
- One-Time Exemption: The exemption is available only once during your entire career.
- Full Amount Taxable: If this is not your first encashment, the entire leave encashment amount is subject to tax.
- Calculation: Encashment = Daily Salary × Number of Leave Days
- Daily Salary: Calculated as Monthly Salary ÷ 30