Hello @Susovan_Garai
Leave encashment exemption is available under Section 10(10AA), subject to the following conditions:
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Government employees: Leave encashment received at the time of retirement is fully exempt.
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Non-government employees: Exemption is available only on retirement or termination, limited to the least of:
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Actual leave encashment received
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₹25,00,000 (lifetime limit)
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10 months’ average salary
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Cash equivalent of leave (maximum 30 days per year of service)
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Leave encashment during service is fully taxable.
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Salary for exemption calculation includes Basic pay, DA (if forming part of retirement benefits), and eligible commission.
If these conditions are fulfilled, you may claim the exemption and reject the addition on the income-tax portal. Otherwise, the amount is taxable and the demand raised must be accepted and paid.