Leave encashed at the time of retirement or resignation:-
- Leave encashment received by Central or State Government employee at the time of retirement or resignation is fully exempt
- Leave encashment received by legal heirs of deceased employee is fully exempt
- Leave encashment received by Non-Government employee is exempt based on the computation provided under Section 10(10AA)(ii) and balance amount if any is taxable as ‘income from salary’
Computation:
A. Leave Encashment Received
B. Least of the following (a to d):
1. 300,000 (** Current limit specified under IT Act)
2. Actual leave encashment amount
3. Average salary* of last 10 months
4. Salary per day * unutilised leave (considering maximum 30 days leave per year) for every year of completed service
C. Leave encashment taxable – (A) – (B)
- Salary for this purpose includes basic salary, dearness allowance and commission based on a fixed percentage of turnover secured by employee