Glossary
Leave encashment
Payment for unused earned leave, annually or on separation, computed on wages — subject to the 50% deemed-wages floor, exempt to ₹25 lakh under Income-tax Act 2025 §19.
Leave encashment converts unused earned leave into a cash payment, either at year-end (where policy allows) or on exit. Because it is computed “on wages,” the deemed-wages rule applies — a low-basic CTC still produces a deemed-wages-based payout.
Under the Income-tax Act 2025 the exemption limit is ₹25 lakh, mapped from the old §10(10AA) to §19 Sl. 13–14, with the amount unchanged in the transition.
Why it matters now: leave-encashment policy and payroll system configuration should compute on deemed wages, not on the narrow basic-pay figure many older systems still default to.