Leave Salary Encashment Exemption & Taxability | H&R Block
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Is Leave Encashment Exemption Taxable?

Every organization offers certain number of paid leaves for its employees. Many times employees accumulate such paid leaves. If and when these leaves are en-cashed by the employee, there are tax implications on the same. In this article we will discuss leave encashment from taxability perspective.

Following points must be of prime consideration during leave encashment:

  • Encashment of leave during the period of employment is always taxable.
  • Leave encashment by government employee at the time of retirement or resignation from a job is tax-free.
  • For non- government employees can avail tax exemptions if leave encashment is done at the time of retirement or resignation from a job. The lowest amount from the following calculations will be exempted from tax:
  1. Period of earned leave in no. of months multiplied by average monthly salary. Maximum of 30 days of earned leave per year for completed years of service is taken into consideration.
  2. 10 times of average monthly salary.
  3. 3,00,000/-
  4. Or leave encashment actually received.

However, please note the below:

  1. If an employee receives leave encashment from more than one employer, the quantum of exemption will be computed independently in respect of each employer.
  2. The total amount of exemption should not exceed Rs.3,00,000/- during his lifetime.

As discussed in this article, it is always recommended to en-cash leave salary at the time of retirement or resignation from a job.

 

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Chetan Chandak (B.Com, LLB)
Chetan Chandak (B.Com, LLB)
Chetan is the Head of Tax Research at H&R Block (India) with an experience of more than a decade in tax advising. He is also a regular contributor for some of the leading news publications in India such as Economic Times, Financial Express and Money Control. Professionally, Chetan is fascinated by international taxation and expat-related tax research.