ITR
Leave encashment received when leaving a job
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Facts
Leave encashment received on leaving a non-government job is exempt up to the least of the limits in the law, including a ceiling of ₹25 lakh notified from 1 April 2023. Any excess is taxable as salary.
Provisions and law
- Sec 10(10AA), Income-tax Act 1961Leave encashment on retirement or leaving service is exempt up to set limits and a notified ceiling (2025 Act number to be confirmed).
Analysis
The exempt amount is the least of the actual amount, the notified ceiling, ten months' average salary, and the cash value of unused leave as per the formula. If you received ₹2,40,000 and the formula gives a lower figure of ₹1,90,000, then ₹50,000 is taxable. Check how the old employer showed it in Form 16, and recompute if needed.
Conclusion
- Find the leave encashment amount in the F&F statement.
- Check exempt and taxable parts in the old employer's Form 16.
- Recompute using the formula if unsure.
- Report the exempt part and include the taxable part in salary.
A Savvy can do this for you
Return after a job switch with two or more Form 16s
₹1,499
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