Leave Encashment Calculator

The basic formula is: Leave Encashment = (Monthly Salary ÷ Working Days in a Month) × Leave Days. Most organisations use 26 as the number of working days per month (as per the Payment of Wages Act). Some may use 30 calendar days. The salary base typically includes basic salary and dearness allowance.

Tax treatment depends on your employer type and the reason for encashment. Government employees receive full exemption on leave encashment at retirement. For private-sector employees, leave encashment at retirement is partially exempt under Section 10(10AA)(ii) — the least of four conditions applies. Leave encashment during resignation is fully taxable as salary income.

The current statutory exemption limit for non-government employees under Section 10(10AA)(ii) is ₹25,00,000. This limit was raised from ₹3 lakh and is a cumulative lifetime limit across all employers. Any amount received in excess of the exemption is taxable as salary income.

For non-government employees at retirement, the exempt amount is the lowest of: (1) Actual leave encashment received, (2) ₹25,00,000 statutory limit (reduced by prior claims), (3) Last 10 months' average salary, (4) Cash equivalent of leave earned based on 30 days per year of service times the average daily salary for the last 10 months. The taxable portion, if any, is treated as salary income.

For the purpose of leave encashment, salary typically means basic salary plus dearness allowance. Other allowances, HRA, or special pay are generally not included, unless your employer's policy specifies otherwise. The salary basis can be the last drawn salary or the average for the last 10 months depending on which exemption condition applies.

Many organisations allow encashment of a portion of earned leave while still in service, subject to a policy maximum. Such in-service encashment is generally fully taxable as salary income, unlike retirement-time encashment. Check your HR policy for specific limits and timing.

Yes. Leave encashment received under a Voluntary Retirement Scheme (VRS) generally qualifies for the same exemption as retirement-time encashment under Section 10(10AA)(ii) for non-government employees. Government employees on VRS also get full exemption.

Companies often cap the number of leave days that can be encashed, regardless of actual balance. A common policy allows encashment of up to 300 days over a career. If your leave balance exceeds the cap, only the capped number of days is considered for payment.

No. The estimates are illustrative and based on widely applicable rules. Actual payout depends on your employer's HR policy, payroll practice, applicable tax provisions, and personal employment history. Verify with your HR department or a tax advisor before making decisions.