3.1 Leave of absence

Commentary

3.1.2 Taxation of leave encashment

India
India | Commentary

3.1.2 Taxation of leave encashment

India | Commentary

3.1.2     Taxation of leave encashment

Many organisations permit their employees to accumulate their unused leave and encash it for a monetary return. Such encashment may be during service or at the time of retirement.

Leave encashed during service is fully taxable.

For private sector employees, the least of the following amounts is exempt from income tax as per section 10(10AA):

  1.  

    •     10 × average monthly salary

  2.  

    •     INR 300,000 (statutory limit)

  3.  

    •     actual leave encashment received

  4.  

    •     period of earned leave × average monthly salary

The balance amount, if any is liable for income tax. The working is illustrated as

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