Leave encashment taxation and exemption rules hinge on retirement status, employer category, and lifetime deduction limits. Leave encashment is treated as salary income, with exemption depending on the applicable Income Tax Act regime. For retirement-related leave salary, government employees are allowed full deduction, while non-government employees are allowed deduction up to the least of the cash equivalent of earned leave, ten months' average salary, the notified limit, and the actual payment received. Under the earlier regime, leave encashment during employment or on termination is fully taxable, subject to retirement exemptions, lifetime caps, and the multiple-employer aggregation rule.