It is taxable if received while in service. For an employee hired by the government, leave encashment received at the time of retirement is exempt from tax. On the hand, the leave encashment of employees not hired by the government will be exempt from tax subject to the limit prescribed below:
The exemption will be least / minimum of the following:
- Amount notified by the Government i.e., INR 3,00,000
- Actual leave encashment amount received
- Average salary * of last 10 months
- Salary per day * unutilized leave (considering maximum 30 days leave per year) for every year of completed service
- * Depicts multiply sign
- Here completed service refers to the whole year of service and will not include the months. For e.g. If an employee works for 16.8 years, then the completed year of service will be 16 years.