Work out tax-free and taxable leave encashment on retirement or while in service, with the non-government four-way minimum and the ₹25 lakh lifetime ceiling applied correctly.
Why is leave encashment while in service fully taxable?
Because the retirement exemption in section 10(10AA) applies on retirement. An encashment during employment does not enter that exemption route, so the amount is taxed as salary in full.
What counts in average salary for this calculation?
The last ten months' average of basic pay, dearness allowance to the extent it forms part of retirement benefits, and commission based on a fixed percentage of turnover where that applies. Allowances outside that definition do not enter the average.
Why do you ask about prior exempt leave encashment?
Because the ₹25,00,000 ceiling is a lifetime aggregate for a non-government employee, not a fresh limit at each employer. If you already used part of it earlier, the remaining ceiling is what matters today.
Why do you cap leave at 30 days per year?
Because the non-government exemption rule calculates leave at credit on the basis of a maximum of 30 days for every completed year of service. A more generous employer leave policy can raise the cash paid, but not the exempt limit beyond that cap.
Is a government employee always fully exempt?
On retirement, yes under section 10(10AA)(i). But leave encashment while still in service is a different case and stays taxable.