Calculate your leave encashment payout

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Unused earned leave is paid as encashment on retirement, resignation, or year-end. Calculate amount + tax-exempt portion.

Tax-Aware Math Live Calculation Visual Breakdown

Leave details

Encashment = (Basic + DA) ÷ 30 × leave days. Tax cap ₹25L for non-govt; unlimited for govt.

Monthly Basic + DA

Unused leave days

Employer type

Leave encashment

₹80,000

60 days × ₹1,333 / day (Basic ÷ 30)

Basic + DA₹40,000 / mo

Leave days60 days

Per-day rate₹1,333

Total encashment₹80,000

Tax-exempt portion₹80,000

Taxable portion₹0

How leave encashment is calculated

Companies typically encash unused earned leave at retirement, resignation, or end of the calendar year (carry-forward cap).

01
Per-day rate
Monthly Basic + DA divided by 30. (Some companies use ÷26, check policy.)
```
per_day = (basic + da) ÷ 30
```
02
Multiply by days
Per-day rate × unused leave days = gross encashment.
```
encashment = per_day × leave_days
```
03
Tax treatment
Government employees: fully tax-free. Private: tax-free up to ₹25L (lifetime cap), rest taxable.
```
exempt = min(amount, 2500000)
taxable = amount − exempt
```

FormulaEncashment = (Basic + DA) ÷ 30 × Unused Leave DaysTax exemption: ₹25L lifetime cap for private employees (Section 10(10AA)); unlimited for govt.

Why we use this formula by default.
Indian payroll convention, statutory references, and the SaaS tooling that runs payroll all converge on this approach. Below are the authoritative sources we cross-checked.

Tax Reference

Section 10(10AA) Income Tax Act

Tax exemption: ₹25 lakh lifetime cap for non-government employees.

Labour Code

Code on Wages, 2019

Leave provisions and statutory carry-forward rules.

Payroll SaaS

RazorpayX Payroll

Industry-standard leave encashment formula and tax adjustment.

Tax Reference

ClearTax Leave Encashment

Tax treatment for govt vs private sector and Form 16 reporting.

Consultancy

hinote.in

Leave policy structures used by Indian HR teams.

Originating Ref

Income Tax Department India

Section 10 exemption circulars and clarifications.

FAQs about leave encashment

Is leave encashment tax-free?

Government employees: fully tax-free at any amount. Non-government: tax-free up to ₹25L lifetime (as of FY 2023-24, raised from ₹3L). Above that, taxed as salary income.

When can I encash leave?

Three common events: (a) end of year (some companies cap carry-forward and force encash), (b) resignation, (c) retirement. Encashment during active service is also possible at some employers.

Which leaves can be encashed?

Typically only earned/privilege leave (EL/PL). Sick leave and casual leave usually lapse and cannot be encashed. Check your HR policy.

Is the per-day rate Basic ÷ 30 or ÷ 26?

Most private companies use ÷ 30 (covering all calendar days). Some use ÷ 26 (working days only, matching gratuity formula). Government uses ÷ 30. Check your appointment letter.

Is encashment paid for medical or maternity leave?

No — those are paid leaves with their own policy. Leave encashment specifically refers to unused earned/privilege leave carried over.

What about leave encashment during F&F?

Included in the Full and Final settlement. All unused earned leave accumulated up to the last working day is encashed at the final per-day rate.

Can the employer reject encashment?

No, if it's in your company's leave policy or appointment letter. Most companies cap accumulation (e.g., 30-45 days carry-forward) and auto-encash the excess each year.

How is the lifetime ₹25L cap tracked?

You declare cumulative leave encashment received from all past employers in Form 16. ITR adjusts the exemption. Maintain old Form 16s to track lifetime utilisation.

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Calculate your leave encashment payout

Leave details

How leave encashment is calculated

Per-day rate

Multiply by days

Tax treatment

Section 10(10AA) Income Tax Act

Code on Wages, 2019

RazorpayX Payroll

ClearTax Leave Encashment

hinote.in

Income Tax Department India

FAQs about leave encashment

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