IT Exemptions on Gratuity + Severance Pay + Leave Encashment

Gratuity: Exempt under Setion 10(10) of the income tax act, subject to certain limits.

Leave Encashment: Exempt under Section 10(10AA) for employees of non-government entities, with limits based on factors like last drawn salary and years of service. 

Severance Pay/VRS Compensation: Exempt under Section 10(10C), subject to limits and conditions specified in the section.

To avail these exemptions while filing ITR-1:

Report the amounts received under each category

Claim exemptions under the relevant sections 10(10), 10(10AA), 10(10C) as applicable.

No specific form like 10E needs to be filled in advance for these exemptions in the context of ITR-1 filing for VRS benefits..

much appreciated for a clarified response Rama sir . Thanks .

a follow up question pls -

for FY24-25 , last date to file ITR file has been extended till 15/09/2025 where as I hear ( from some social media posts ) regarding late payment charges (interests ) beyond 31/07/2025 , is it true ? 

can we file comfortably by 15/09/2025 or need to rush to file before 31/07/2025 ( day after tomorrow ) pls ?

Thanks in advance 

Regards

Rama sir , I just noticed , we can't mention more than 5Lacs u/s 10(10C) which is VRS / severance Pay . Attaching the screenshot of income tax portal for your reference . 

Kindly suggest how to proceed ? 

Best Regards

The three components are taxed quite differently, so worth separating.

Gratuity: Government employees get full exemption. For private sector, exemption is the least of: actual gratuity received, Rs 20 lakh (enhanced limit), or 15 days salary x completed years of service (using last drawn basic + DA).

Leave encashment under Section 10(10AA): Government employees get full exemption. For private sector, exemption is the least of: actual amount received, Rs 25 lakh (limit revised in May 2023), 10 months average salary, or salary per day x un-availed leave (max 30 days per year of service). Rs 25 lakh is a once-in-a-lifetime limit across all employers.

Severance or VRS: Section 10(10C) provides exemption up to Rs 5 lakh for voluntary retirement, subject to specific conditions including the employee being at least 40 years old or having 10 years of service.

All three go in the exempt income schedule in ITR-2. Form 16 Part B should reflect these under the respective section codes.

This [leave encashment exemption guide for AY 2026-27](https://taxgarden.in/blog/leave-encashment-tax-exemption-section-10-10aa-india-ay-2026-27) has the calculation table with worked examples.