Leave encashment refers to the amount of money collected in return for unused leave by an employee. During retirement, an employee can cash in his or her accrued leave. Employees do so while maintaining service or upon quitting from their jobs.

How is leave encashment calculated?

Encashment of leaves is taxable under the Income Tax Act of India. Whether a leave encashment is received during employment or at the moment of retirement, resignation, or termination, for example, affects the tax treatment.

To calculate the amount of leave encashment, follow these steps:

• Divide the basic pay and Dearness Allowance by thirty. The number of days EL (up to 300) multiplies the result.

What are the advantages of leave encashment?

The employer provides leave encashment to employees, allowing them to gain financially from untaken leaves. You should keep in mind that leave encashment is not tax-free; nonetheless, the Income Tax Department has allowed an exemption of a specified amount under Section 10(10AA).

What is the primary benefit of the tax exemption for leave encashment?

Employees get tax-free leave encashment at the time of retirement, subject to the requirements and limits established in Section 10 (10AA). The tax benefits are governed by the Income Tax Act of 1961 and the Income Tax Rules of 1962. This is one of the primary benefits of the leave encashment tax exception.