Leave Encashment Calculator
Value the leave you never took and see how much of the payout is tax free. The rules shift sharply depending on whether you are paid while still working or on the way out.
Your details
Encashment and tax
| Basic + DA considered | ₹60,000 |
| Per-day salary | ₹2,000 |
| Exempt under section 19 (formerly 10(10AA)) | ₹1,20,000 |
| Taxable as salary | ₹0 |
Exemption is the least of these four
| Actual amount received | ₹1,20,000 |
| Statutory ceiling | ₹25,00,000 |
| 10 months' salary | ₹6,00,000 |
| Leave credited at 30 days per year | ₹12,00,000 |
Exemption is the least of the four limits below.
The ₹25 lakh ceiling is a lifetime aggregate across every employer, so subtract any exemption you have already claimed on an earlier encashment.
What is leave encashment?
Leave encashment is pay for earned leave you built up but never took. Most Indian employers allow it when you resign or retire. Some also allow it once a year against a carry-forward cap. Only earned or privilege leave usually counts, since casual and sick leave tend to lapse at year end.
The amount is simple to work out, but the tax is not. Two questions decide it: whether you are a government employee, and whether the money is paid during service or when you leave.
How leave encashment is calculated
The standard formula values each day of leave at a thirtieth of monthly basic pay plus dearness allowance:
- Per-day salary = (Basic + DA) ÷ 30
- Encashment = Per-day salary × Number of unused leave days
Some employers divide by 26 instead of 30, which lifts the per-day rate. Check your leave policy. The divisor is a matter of contract, not of law.
Tax treatment: the four limits
Money paid while you are still working is taxed in full as salary, with no exemption at all. The exemption only bites when the payment comes at retirement or resignation, and the rules then split by employer type. It now sits in the table under section 19 of the Income-tax Act, 2025, which took over from section 10(10AA) of the 1961 Act on 1 April 2026 without changing any of the limits.
Government employees pay no tax on it. For everyone else, the exemption is the least of four limits. In practice one of them binds well below the headline ceiling:
| Limit | What it means |
|---|---|
| Actual amount received | The encashment your employer in fact paid |
| ₹25,00,000 | Statutory ceiling, raised from ₹3,00,000 with effect from FY 2023-24 |
| 10 months' average salary | Ten times the average monthly basic plus DA |
| Cash value of credited leave | Leave valued at no more than 30 days for each completed year of service |
The fourth limit catches most people out. However generous your employer's leave policy, the exemption counts only 30 days of leave for each completed year you served.
Two employees, very different outcomes
An employee retires on a basic salary of ₹60,000 a month, after 20 completed years, with 60 days of unused leave.
The per-day rate is ₹2,000, so the payout is ₹1,20,000. Now test the four limits. The actual amount is ₹1,20,000. The ceiling is ₹25,00,000. Ten months of salary is ₹6,00,000. Credited leave is worth 30 × 20 × ₹2,000, or ₹12,00,000. The lowest is the actual amount, so the whole payout is tax free.
Now change one variable: say the same employee had banked 400 days of leave. The payout rises to ₹8,00,000, but ten months of salary caps the exemption at ₹6,00,000. That leaves ₹2,00,000 taxed as salary.
The ₹25 lakh ceiling is a lifetime limit
As with gratuity, the ceiling covers your whole career rather than each employer. Claim ₹4,00,000 of exemption when you leave one job, and only ₹21,00,000 is left for any later payout.
Employers cannot see what you claimed elsewhere. Tracking the running total is your job when you file your return.
Sources
The exemption sat in section 10(10AA) of the Income-tax Act, 1961 until 31 March 2026. From 1 April 2026 it is in the table under section 19 of the Income-tax Act, 2025, at entries 13 and 14. The four limits and the ₹25 lakh ceiling are unchanged.
- Central Board of Direct Taxes — Income-tax Act, bare text and section-wise searchincometaxindia.gov.in
- Income Tax Department — slab rates, surcharge, cess and rebate for individualsincometax.gov.in
This calculator is an estimate, not tax or legal advice. Where a figure here and the statute disagree, the statute governs.
Frequently Asked Questions
How is leave encashment calculated?
Is leave encashment taxable?
How much leave encashment is tax-free?
Is leave encashment taxable on resignation as well as retirement?
Can sick leave and casual leave be encashed?
Is leave encashment paid on basic salary or gross salary?
Leave balances that stay current
Engage HRMS tracks accrual, carry-forward caps and lapse rules for each policy. Encashable balances stay current, and full and final settlement takes minutes rather than days.
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