Leave Encashment

Tax Glossary Definition

Leave Encashment

Leave encashment is the monetary payment made by an employer to an employee for accumulated but unused leave. For tax purposes, it is partially or fully exempt under Section 10(10AA) of the Income Tax Act, depending on whether the employee is government or non-government staff and subject to prescribed limits.

Example: An employee receives ₹2 lakh as leave encashment, which may be fully or partially exempt up to ₹3 lakh under Section 10(10AA).

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