Leave Encashment Calculator

What is leave encashment?

Leave encashment is the payment your employer makes for earned or privilege leave you did not take. Many employers allow encashment while you are working (often once a year) and pay for the accumulated balance when you resign or retire. The amount is usually your daily basic plus dearness allowance multiplied by the days encashed.

This leave encashment calculator works out the payment from your salary and leave balance, and applies the income tax rules to show how much is tax-free and how much is taxable.

How this calculator works

Leave encashment converts your unused earned leave into cash, usually when you resign or retire. The per-day rate is your monthly Basic + DA divided by 30, multiplied by the number of days being encashed.

The tax treatment is where it gets interesting. For government employees the entire amount is exempt. For everyone else, section 10(10AA)(ii) allows the least of four limits — a statutory ceiling of ₹25 lakh, the actual amount received, ten months of average salary, and the cash value of 30 days of leave for each completed year of service.

That last limit is the one that usually bites: it caps the exemption regardless of how much leave your employer actually allowed you to accumulate.

Formula

Per-day wage = monthly Basic + DA ÷ 30
Encashment   = per-day wage × leave days

Exemption (non-government) = least of:
  1. ₹25,00,000 (lifetime limit)
  2. Actual amount received
  3. 10 months × average monthly Basic + DA
  4. Per-day wage × 30 days × completed years of service

Worked example

Basic + DA ₹60,000 a month, 45 days of unused leave, 8 years of service.
Per-day wage = ₹2,000; encashment = ₹90,000.
The four limits are ₹25,00,000 / ₹90,000 / ₹6,00,000 / ₹4,80,000 — the least is ₹90,000, so the whole amount is exempt.

How leave encashment is taxed

Situation	Tax treatment
Encashed while still in service	Fully taxable as salary
On retirement or resignation — government employees	Fully exempt
On retirement or resignation — other employees	Exempt up to the least of four limits, including a lifetime cap of ₹25 lakh
Received by legal heirs after the employee’s death	Not taxable

For non-government employees, the exempt amount is the least of: the actual amount received; ₹25 lakh (lifetime, across employers); 10 months’ average salary; and cash equivalent of unused leave limited to 30 days for every year of service. The calculator applies all four.

Assumptions & important notes

What this calculator assumes

Encashment happens at retirement or resignation. Leave encashed while still employed is fully taxable, whatever the limits say.
Average salary is taken as the current Basic + DA. Strictly, it is the average of the last ten months.
The ₹25 lakh exemption limit is a lifetime cap across all employers.

Important notes

The exemption ceiling was raised from ₹3 lakh to ₹25 lakh with effect from April 2023.
Leave encashment paid to the family after an employee’s death is fully exempt.
Any taxable portion is added to salary income for the year and taxed at your slab rate.

Frequently asked questions

Is leave encashment during service taxable?

Yes, fully. The exemption under section 10(10AA) only applies to encashment at retirement or when leaving the job. Relief under section 89 may be available in some cases.

Why is the exemption limited to 30 days a year?

The law caps the calculation at 30 days of leave for each completed year of service, regardless of your employer’s more generous policy. Days beyond that are paid but not exempt.

Do government employees pay tax on leave encashment?

No. Leave encashment received on retirement by central or state government employees is fully exempt from income tax.

How is the per-day salary worked out?

Most employers divide monthly basic plus DA by 30 (some use 26). With a basic of ₹60,000 and 45 days of leave, the payment at ₹2,000 a day is ₹90,000. Check your company’s leave policy for its divisor.

About the Leave Encashment Calculator