Leave Encashment ₹25 Lakh Tax Exemption: Non-Govt Employees Ke Liye Rules AY 2026-27
Non-Govt Employees
Govt Employees
non-govt
ITA 1961
| Employee Type | Exemption | Condition |
|---|---|---|
| Central/State Govt | 100% tax-free | At retirement/superannuation |
| Non-Govt (private sector) | Minimum of 4 conditions — max ₹25L | At retirement, resignation, or termination |
| During service (non-govt) | Taxable in year received | No exemption available during employment |
| Death of employee | Fully exempt | Paid to legal heir |
- Actual leave encashment received
- ₹25,00,000 (government notified limit)
- 10 months' average salary
- Cash equivalent of leave earned: (Salary ÷ 30) × Max 30 days per year × years of service
Job chhodne ya retire hone par jo leave balance paya milti hai use leave encashment kehte hain. Govt employees ke liye yeh 100% tax-free hoti hai. Private sector employees ke liye Section 10(10AA) ke under exemption milti hai — aur Budget 2023 ne yeh limit ₹3 lakh se badhake ₹25 lakh kar di. AY 2026-27 mein yeh enhanced limit applicable hai. Poora calculation aur rules samjhein.
Section 10(10AA) Kya Kehta Hai?
Section 10(10AA) of Income Tax Act 1961 leave encashment ki exemption govern karta hai. Iske do parts hain:
- 10(10AA)(i): Central/State Government employees — leave encashment at retirement fully exempt (koi limit nahi)
- 10(10AA)(ii): Other employees (private sector, PSU, etc.) — exemption limited to minimum of 4 amounts (calculation below)
Effective from AY 2023-24 (FY 2022-23 onwards), non-govt employees ke liye limit ₹3L se ₹25L ho gayi — Budget 2023 mein announced, Finance Act 2023 se enacted.
Non-Govt Employees Ke Liye Exemption Calculation — 4 Conditions
Exemption milti hai minimum of these four amounts:
- Actual leave encashment amount received (employer ne kitna diya)
- ₹25,00,000 (government notified maximum)
- 10 months' average salary (last 10 months ki average basic + DA)
- Cash equivalent of earned leave = (Monthly Salary ÷ 30) × Earned Leave days (maximum 30 days per year of completed service)
Exemption = Minimum of above four. Actual amount minus exemption = taxable.
Practical Example — How Exemption Is Calculated
Suppose Ravi retire hota hai after 20 years. Last 10 months average salary (basic+DA) = ₹80,000/month. Leave balance = 180 days. Employer ne ₹4,80,000 diya.
| Condition | Amount |
|---|---|
| ① Actual received | ₹4,80,000 |
| ② Govt limit | ₹25,00,000 |
| ③ 10 months average salary | ₹8,00,000 |
| ④ Cash equivalent (80K÷30 × min(180, 600)) | ₹4,80,000 |
| Exemption = Minimum | ₹4,80,000 |
In this case full ₹4,80,000 exempt hai — zero tax. If employer had paid ₹10L against same leave balance, then: min would be ₹4,80,000 from condition ④, so ₹10L − ₹4.8L = ₹5.2L taxable.
Kab Milti Hai Exemption?
Non-govt employees ko leave encashment exemption milti hai service termination par — yani:
- Retirement / Superannuation
- Voluntary Retirement (VRS)
- Resignation
- Termination
During service (job chhodi nahi, bas leave encash ki) — exemption nahi milti. Jo amount milegi woh fully taxable hogi us year mein. Govt employees yahan bhi better positioned hain — unhe leave encashment during service bhi kuch cases mein exempt hai (department-specific rules).
Multiple Employers Hain To?
Agar aapne career mein kai private sector employers ke saath kaam kiya aur multiple leave encashment benefits liye — exemption ki total lifetime limit ₹25 lakh hai (across all employers). Ye aggregate hai, per-employer nahi.
ITR mein disclose karna hoga ki kisi previous employer se leave encashment mili thi ya nahi — aur kitni exemption pehle claim ki gayi thi.
Form 16 Mein Kaise Dikhega?
Employer leave encashment amount Form 16 Part B mein dikhayega. Section 10(10AA) exempted amount alag line item hogi — "Leave encashment received on retirement." Taxable portion (if any) salary mein include hogi.
ITR-1 mein "Exempt Allowances" section mein ye amount enter karein — Section 10(10AA) ke under. ITR-2 mein also similar field hoga.
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