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.
How leave encashment is calculated
Leave encashment is the payment an employee receives for unused earned leave (also called privilege leave). The most common leave encashment calculation uses the employee's last drawn Basic Salary plus Dearness Allowance (DA) to arrive at a per-day rate, which is then multiplied by the number of unused leave days.
Leave Encashment = (Basic + DA) ÷ 30 × Number of unused leave days
Note: many employers and the central government use 26 (working days) instead of 30 as the divisor — this calculator uses ÷26. Always check your company's leave policy for the exact denominator used.
Suppose an employee has a monthly Basic + DA of ₹30,000 and 20 days of unused earned leave at the time of leaving.
Per-day rate = ₹30,000 ÷ 30 = ₹1,000/day
Leave encashment = ₹1,000 × 20 days = ₹20,000
If the same calculation used a ÷26 divisor, the per-day rate would be ₹1,154 and the encashment would be approximately ₹23,077.
Tax note: Leave encashment received by central and state government employees on retirement is fully exempt from income tax under Section 10(10AA). For private sector employees, the exemption is capped — up to ₹25 lakh as per the 2023 update — under Section 10(10AA), with any excess taxable as salary income.
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
How is leave encashment calculated?
Leave encashment is calculated using the formula: (Basic + DA) ÷ 30 × number of unused (earned) leave days. First find the per-day salary by dividing the monthly Basic + DA by 30 (some employers and the central government use 26 working days instead), then multiply by the number of unused leave days. For example, ₹30,000 Basic + DA with 20 unused leave days gives ₹30,000 ÷ 30 × 20 = ₹20,000.
Is leave encashment taxable?
It depends on who you are and when you receive it. For central and state government employees, leave encashment at retirement is fully exempt from income tax under Section 10(10AA)(i). For private sector employees, it is exempt up to ₹25 lakh (revised limit from April 2023) under Section 10(10AA)(ii), and any amount above that is taxable as salary. Leave encashment received while still in service is fully taxable for everyone.
What is privilege leave encashment?
Privilege leave (PL) is another name for earned leave (EL) — the leave an employee accumulates for each period of service. Privilege leave encashment is the payment received for converting unused privilege/earned leave into cash, usually at the time of resignation, retirement, or as per company policy. The privilege leave encashment calculation uses the same formula: (Basic + DA) ÷ 30 (or 26) × number of unused privilege leave days.
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.