Compute the Sec 10(10AA) tax exemption on leave encashment (₹25 lakh lifetime cap) and the Ind AS 19 / AS 15 DBO using the Projected Unit Credit method — the direct sibling of the gratuity actuarial calculator, for auditor sanity-checks of the actuary’s report.
For tax, Section 10(10AA) exempts leave encashment received on retirement up to the least of four legs, capped at a ₹25,00,000 LIFETIME limit (CBDT Notification 31/2023, effective 1 April 2023 — up from ₹3 lakh) — a limit that applies across every employer the individual has worked for, not per employer.
For accounting, Ind AS 19 (or AS 15 Revised) requires the same Projected Unit Credit logic used for gratuity — project the leave-days benefit forward (capped at the company’s own encashable-leave policy), attribute the earned portion to past service, and discount to present value. The DBO sits on the balance sheet alongside the gratuity liability.
For non-government employees, Sec 10(10AA) exempts leave encashment received on retirement or resignation up to the LEAST of: (a) actual leave encashment received; (b) 10 months' average salary (based on the average of the last 10 months before retirement); (c) cash equivalent of leave standing to the employee's credit, restricted to 30 days for every completed year of service; and (d) ₹25,00,000 — raised from ₹3,00,000 by CBDT Notification 31/2023, effective 1 April 2023, and unchanged as of Budget 2026. This ₹25 lakh limit is a LIFETIME cap applied across every employer the individual works for, not a fresh limit at each job — the exemption already claimed in earlier years reduces what remains available.
Leave encashment received DURING employment (not on retirement/resignation) is fully taxable as salary for a non-government employee — Sec 10(10AA) applies only to encashment at the point of leaving service. Government employees get full exemption on retirement, with no monetary ceiling.
For accounting, Ind AS 19 (or AS 15 Revised) requires the same Projected Unit Credit method used for gratuity: project the leave-days benefit to the exit date (subject to the company's own encashable-leave policy cap), attribute the earned-to-date portion to past service, and discount to present value using a government-bond yield matching the expected term. Because leave can typically be encashed at any point (not only at retirement), many actuaries also value a short-term/current component separately — this calculator models the retirement-exit component only, mirroring the gratuity calculator's single-employee sanity-check scope.
Employee aged 35, 6 years completed service, monthly basic + DA ₹50,000, 45 leave days currently to credit, accruing 30 days/year, company cap of 300 encashable days, retirement at 58. No prior Sec 10(10AA) claims.
