Leave encashment received on retirement is exempt from tax. It is eligible only if it is received on retirement from employment, and not if encashed during the course of employment. Courts have held that such retirement need not necessarily be on retirement at superannuation, but would also cover cases of leaving an employment by resigning. For employees of the central or state governments, the entire leave encashment amount received is exempt, without limits or conditions. On the other hand, for all other employees, there are various conditions and limits that are applicable to be able to claim exemption.
