16 April 2016
Encashment of leave salary at the time of retirement Exemption from amount received as leave salary is available under Section 10(10AA). For the purpose of availing exemption under section 10(10AA), the employees are divided into 2 types of categories:- 1. Govt Employees (Central Govt and State Govt employees only): Leave encashment of accumulated leave at the time of retirement, whether on superannuation or otherwise, received by a Govt employee, is fully exempt from tax. No tax would be levied on any amount received as leave encashment by govt employees on retirement. 2. Other Employees: Leave encashment of accumulated leave at the time of retirement whether on superannuation or otherwise received by any other employee (except those covered above) is exempt from tax to a certain limit. In such a case, the least of the following shall be exempted:- 1. Leave encashment actually received 2. 10 months “average salary” 3. Cash equivalent of unavailed leave calculated on the basis of maximum 30 days leave for every year of completed service. 4. Amount specified by the Govt i.e. Rs. 3,00,000
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