Leave Encashment Calculator
Calculate leave encashment amount on resignation, retirement or during service.
Based on central government formula: (Basic+DA) ÷ 26 × leave days. Private companies may use different denominators.
Tax Treatment of Leave Encashment
Leave encashment received by central and state government employees at the time of retirement is fully exempt from income tax under Section 10(10AA)(i) of the Income Tax Act. No upper limit applies.
For private employees, the exemption is the least of: (a) actual encashment received, (b) ₹25 lakhs (revised limit from April 2023), or (c) average salary × 10 months, or (d) salary per day × earned leave (max 30 days per year of service).
Leave encashment received during service (while still employed) is fully taxable as salary income for both government and private employees. No exemption is available under Section 10(10AA) for encashment during service.
Frequently asked questions
What is the ₹25 lakh exemption limit for leave encashment?
From April 1, 2023, the Income Tax exemption limit for leave encashment at the time of retirement for non-government employees was increased from ₹3 lakhs to ₹25 lakhs. This is the maximum total exemption across all employments in the employee's lifetime. Any amount above ₹25 lakhs is taxable as salary in the year of receipt.
What is the formula for leave encashment in the private sector?
The Payment of Gratuity Act does not prescribe a formula for leave encashment — it is governed by the employment contract or company policy. The Income Tax Act uses a formula for calculating the exempt portion: (Basic+DA per month ÷ 26) × number of earned leave days encashed. Some companies use a denominator of 30 instead of 26.
Can an employee demand leave encashment instead of taking leave?
This depends on the company's leave policy. Most companies allow encashment of accumulated earned leave (EL) only at the time of retirement or resignation. Some companies allow partial encashment once a year. There is no statutory right to demand encashment in lieu of availing leave, unless the employment contract or standing orders provide for it.
Is leave encashment on resignation taxable?
Yes, leave encashment received at the time of resignation (as opposed to retirement/superannuation) is also eligible for the Section 10(10AA) exemption up to ₹25 lakhs for private employees, provided the employee's service ends. The exemption is available at the time the employment ends — whether by resignation, retrenchment, or retirement.
What types of leave can be encashed?
Generally, only earned leave (EL) / privilege leave (PL) can be encashed. Sick leave, casual leave, and other special leaves typically cannot be encashed. Government employees can encash up to 300 days of earned leave on retirement. Private employees' encashment limit is as per company policy.