Leave Encashment Calculator

Leave encashment is the monetary payment an employee receives for unused earned/privilege leave, either during service (if company policy allows periodic encashment) or at the time of resignation, retirement, or termination.

The standard formula is: Encashment = (Basic + DA) ÷ 26 × number of unutilized leave days. The 26 represents working days in a month, matching the same convention used for gratuity calculations.

For government employees, leave encashment at retirement is fully tax-exempt. For private-sector employees, Section 10(10AA) of the Income Tax Act exempts leave encashment up to the least of four amounts: (1) the actual amount received, (2) a lifetime limit of ₹25,00,000 (raised from ₹3,00,000 in Budget 2023), (3) 10 months' average salary preceding retirement/resignation, and (4) the cash equivalent of leave balance calculated at a maximum of 30 days per year of completed service, based on average salary of the last 10 months.

Any amount received during the course of employment (not at separation) is generally fully taxable as salary.

Many companies allow employees to encash a portion of earned leave annually (e.g. leave beyond a certain accumulated cap) even while still employed - this is fully taxable as salary income, unlike encashment at separation which may partially qualify for the Section 10(10AA) exemption.

Companies typically cap total leave accumulation (e.g. 45-60 days) to manage this liability, so it's worth checking your organization's specific leave and encashment policy rather than assuming any particular cap applies.