Gratuity and Leave Encashment: FY 2025-26 Filing Calendar

By CA Nikhil Gupta · 23 July 2026

Use the Leave Encashment Tax Exemption Calculator to apply these points to your figures.

Scope: FY 2025–26 (1 April 2025 to 31 March 2026), filed for AY 2026–27

For the connected rule or filing step, see Gratuity and Leave Encashment: Tax Exemption Rules.

Finin2min Summary

• Likely return: ITR-1 if otherwise eligible; ITR-2 where exclusions apply
• Normal filing date: 31 July 2026
• Starting income head: Salary income with scenario-specific exemption, relief or reconciliation
• Core control: classify the transaction, reconcile gross figures, preserve evidence and only then choose the ITR.
• Transition point: FY 2025–26 income is filed for AY 2026–27 under the Income-tax Act, 1961 despite filing after 1 April 2026.
• Current-law status: reviewed by CA Nikhil Gupta on 26 July 2026 - Section 10(10) ₹20 lakh gratuity cap and Section 10(10AA) ₹25 lakh leave-encashment cap were both current and unchanged as of this review.

The Answer in One Table

The Two-Minute Answer

Start with Form 16 but do not stop there. Reconcile the additional event, determine whether it creates capital gains, relief, exemption or foreign disclosure, and file one complete return.

For the connected rule or filing step, see Gratuity and Final Settlement: Exit Documents Employees Should Save.

This page targets the frequent search intent—which return, which deadline, which schedules and which documents? It does not treat a broker, bank, app or platform label as the legal answer.

Step 1 — Classify the Income

The return form follows the legal head and taxpayer profile. The starting classification is Salary income with scenario-specific exemption, relief or reconciliation and the likely form is ITR-1 if otherwise eligible; ITR-2 where exclusions apply. The final form applies to the taxpayer as a whole: salary, rent, gains, business and other income are combined in one correct return rather than split into separate returns.

When you are ready for the next step, see Leave Accrual, Balance and Encashment Planner.

Classification should be documented before tax is calculated. Review ownership, intention, contracts, frequency, funding, books, services, foreign status and consistency with earlier years. The same product may be an investment for one person and stock-in-trade for another.

Step 2 — Compute the Taxable Amount

Gratuity (Section 10(10)): for a private-sector employee covered under the Payment of Gratuity Act, 1972, the exempt amount is the least of (a) actual gratuity received, (b) ₹20,00,000 (lifetime cumulative limit across employers), or (c) 15/26 × last-drawn salary × completed years of service. For an employee NOT covered under the Act, the formula changes to half a month’s average salary (last 10 months) × completed years, still capped at ₹20,00,000. Government employees are fully exempt with no cap. Leave encashment (Section 10(10AA)): for a non-government employee at retirement/exit, the exempt amount is the least of (a) actual amount received, (b) ₹25,00,000 (raised from ₹3 lakh, effective 1 April 2023, and this cumulative lifetime limit is unchanged for FY 2025–26), (c) 10 months’ average salary, or (d) cash-equivalent of earned leave standing (capped at 30 days per year of service). Amounts above either exemption are taxed as salary at slab rates in the year received.

For the connected rule or filing step, see Leave Encashment Tax Exemption: ₹25 Lakh and Four-Limit Test.

Use transaction-level data wherever lots, dates, fees, refunds, foreign currency or TDS matter. Reconcile gross receipt or sale consideration to platform settlement, bank movement, AIS, Form 26AS and GST. TDS is a credit, not an expense or proof that income was correctly computed.

Step 3 — Apply the Filing Calendar

The normal filing timing is 31 July 2026. For AY 2026–27, ITR-1 and ITR-2 individual cases remain on the 31 July track; non-audit business or professional cases move to 31 August; ordinary audit cases remain 31 October and transfer-pricing cases 30 November. A belated return is generally available to 31 December 2026, subject to earlier assessment completion, but it does not preserve every loss or procedural right.

For the connected rule or filing step, see Tax on Gratuity Above the Exemption Limit.

Income earned during FY 2025–26 remains governed by the Income-tax Act, 1961. The official transition FAQ confirms that the old forms and proceedings continue for AY 2026–27.

Step 4 — Build the Evidence File

• Form 16
• payslips
• employer statement
• transaction documents
• AIS
• 26AS
• tax challans and supporting forms

The file should allow another reviewer to reproduce the number from source statement to ITR schedule. Record the download date because platform reports can later change layout or aggregation.

Worked Indian Example

An employee retires after 22 years, last-drawn basic+DA of ₹80,000/month, and is covered under the Payment of Gratuity Act. Gratuity received: ₹10,15,385 (15/26 × 80,000 × 22). Since this is below both the actual-formula result and the ₹20,00,000 cap, the ENTIRE ₹10,15,385 is exempt under Section 10(10) - nothing is added to taxable salary. Separately, the same employee encashes 240 days of accumulated leave for ₹6,40,000 (10 months’ average salary works out to ₹8,00,000, and the leave cap of 30 days/year × 22 years = 660 days comfortably covers the 240 days encashed). Since ₹6,40,000 is the lowest of the four Section 10(10AA) limits and well under ₹25,00,000, this too is fully exempt. Both amounts are reported in the ITR’s exempt-income schedule even though no tax is payable on them - omitting them from the return (because "it’s tax-free anyway") is itself a common filing mistake.

What Viral Posts Usually Miss

• The due date follows the return category and audit status, not the product’s marketing name.
• TDS is a tax credit, not the final computation.
• Net bank settlement is often not gross income, turnover or sale consideration.
• A belated return does not preserve every loss, option or procedural right.
• The same product can require ITR-2 for an investor and ITR-3 for a business.

Common Mistakes

• filing two returns
• double-counting deductions
• changing Form 16 figures without employer evidence

Finin2min Decision Checklist

• Confirm that FY 2025–26 / AY 2026–27 is the correct filing scope.
• Identify the legal income head before selecting the ITR.
• Reconcile gross figures to bank, AIS, Form 26AS and source statements.
• Compute cost, expenses and tax credits separately.
• Run audit only where business or professional income exists.
• File loss returns by the original due date where carry-forward is required.
• Reopen every official source immediately before filing.

Finin2min Q&A

Which ITR should I use for Gratuity and Leave Encashment Received Together Filing Calendar?

The starting answer is ITR-1 if otherwise eligible; ITR-2 where exclusions apply. The alternative is ITR-1 / ITR-2 where those facts apply.

What is the AY 2026–27 filing deadline?

The normal deadline is 31 July 2026. Audit, transfer-pricing, belated or correction facts can change the calendar.

Which income head applies?

The starting classification is Salary income with scenario-specific exemption, relief or reconciliation. Contracts, ownership, records, intention and consistency can alter the result.

Does a small amount still need reporting?

A small amount does not create a general exemption and can make a simplified return ineligible.

Which documents should I preserve?

Preserve Form 16, payslips, employer statement, transaction documents, AIS, 26AS, tax challans and supporting forms. Keep downloaded source files, not only screenshots.

What is the main filing risk?

Key risks are filing two returns; double-counting deductions; changing Form 16 figures without employer evidence. Classify first, reconcile gross figures and then select the form.

Related Finin2min Reading

• Salary Plus Capital Gains: Why ITR-1 Usually Stops Working
• Salary Plus Freelance Income: ITR-3 or ITR-4 and 31 August Deadline
• Salary Plus Rental Income: Which ITR for One or Multiple Properties?
• Two Employers in One Year: Which ITR and How to Fix TDS Shortfall?
• Joining Bonus Clawback or Notice-Pay Recovery: Can Salary Be Reduced?

Primary Sources

• Income Tax Department — business/profession returns for AY 2026–27
• Income Tax Department — salaried returns for AY 2026–27
• Income Tax Department — transition and filing FAQs
• Finance Bill 2026 memorandum — due-date framework
• Income-tax Act, 1961

Editorial and Risk Note — Disclaimer

Disclaimer: This guide is educational and scenario-based, not individual tax advice. The final return depends on complete facts, residential status, audit position, other income, losses, foreign assets and the law on the filing date. Dynamic deadlines, exemption limits and portal procedures must be rechecked immediately before submission against the current official source.