Leave encashment — up to ₹25 lakh tax-free (Section 10(10AA))

✍️ EaseValue Advisors · Updated 17 Jul 2026 · FY 2025-26

In short

Unused leave encashed on retirement is exempt up to ₹25 lakh (non-government) under Section 10(10AA); government employees are fully exempt.

How much is exempt

Government employees: fully exempt.
Others (on retirement): least of — actual encashment · ₹25,00,000 · 10 months' average salary · cash equivalent of unavailed leave (max 30 days/year).

The ₹25 lakh is a lifetime ceiling. Leave encashed while in service is fully taxable (though relief u/s 89 may apply).

The law behind it

Section 10(10AA) Section 89

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General information for FY 2025-26 (AY 2026-27), not advice on your specific case. Limits, rates and conditions change with each Finance Act and depend on your facts — confirm before acting. © EaseValue Advisors LLP.

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