Amount received as Leave Encashment on Retirement [Section 10(10AA)]

As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is exempt from tax.

In the hands of non-Government employee exemption will be least of the following:

Govt. employee i.e. Central and State Govt. employees

Any other employee

Fully Exempt

Minimum of the following four limits:

  1. Leave encashment actually received; or
  2. 10 months average salary; or
  3. Cash equivalent of un-availed leave calculated on the basis of maximum 30 days leave for every year of actual service rendered; or
  4. Rs.3,00,000

Meaning of salary :

  1. Basic salary plus D.A. to the extent the terms of employment so provide plus Commission, if fixed percentage of turnover.
  2. Average salary of last 10 months immediately proceeding the date of retirement.