Leave Encashment Calculator
Calculate your leave encashment — the cash value of unused earned leave when you resign, retire, or your employer runs an encashment window. Standard Basic + DA formula, the ÷30 vs ÷26 difference, and the ₹25 lakh tax exemption explained.
Quick answer: Leave encashment = (monthly Basic + DA ÷ 30) × unused earned leave days. With ₹45,000 Basic+DA and 32 EL days: (45,000 ÷ 30) × 32 = ₹48,000. On exit, private-sector encashment is tax-exempt up to ₹25 lakh under Section 10(10AA).
What Is Leave Encashment?
Earned leave (also called privilege leave) that you don't use can be converted to cash — encashed — most commonly when you exit a job, at retirement, or in periodic company encashment windows. It is real deferred compensation: every unused EL day is roughly a day's Basic+DA sitting on the employer's books in your name, growing with every raise. Indian state Shops & Establishments Acts and the Factories Act underpin the right; company policy sets the mechanics.
Leave Encashment Formula
Encashment = (Monthly Basic + DA ÷ 30) × Unused EL Days
The divisor is policy: ÷30 (calendar-day basis) is most common; ÷26 (working-day basis) pays about 15% more per day. The salary base is almost always Basic + DA, not gross — the same convention as gratuity, and the same reason low-basic CTC structures shrink exit payouts.
Worked Examples
Example 1 — resignation. ₹45,000 Basic+DA, 32 unused EL days, ÷30 policy: per-day ₹1,500 × 32 = ₹48,000 in the FnF settlement.
Example 2 — the divisor difference. Same numbers on ÷26: ₹1,731 × 32 = ₹55,385 — ₹7,385 more. Worth one look at your HR manual.
Example 3 — retirement with the exemption. A retiree with ₹80,000 Basic+DA and 300 accumulated days: (80,000 ÷ 30) × 300 = ₹8,00,000, fully tax-exempt (well under ₹25L and within the 300-day/10-month rules).
Which Leave Types Can Be Encashed
| Leave type | Encashable? |
|---|---|
| Earned / Privilege Leave (EL/PL) | Yes — the standard encashable bank |
| Casual Leave (CL) | Rarely — usually lapses annually |
| Sick Leave (SL) | Rarely — usually lapses; some PSUs encash at retirement |
| Comp-offs | Policy-dependent, often expire fast |
| Maternity/paternity leave | No — statutory usage-only leave |
Tax on Leave Encashment (Section 10(10AA))
During employment: fully taxable as salary — encashment windows mid-career carry no exemption. On resignation or retirement (private sector): exempt up to the least of four: (1) actual amount received, (2) ₹25 lakh lifetime, (3) 10 months' average salary (Basic+DA, last 10 months), and (4) cash value of unused leave capped at 30 days per completed year of service. Government employees: fully exempt at retirement. Practical notes: the 30-days-per-year cap means someone with 45-day annual accrual can't exempt it all; the ₹25L is a lifetime aggregate across employers, so keep records; and death-case encashment paid to nominees is exempt without limit.
Encashment vs Taking the Leave
Financially, a leave day taken is worth your full gross for that day plus the rest; an encashed day pays only Basic+DA — typically 40–60% of gross. Pure economics says use your leave. Encashment wins when: you're exiting anyway (the balance is use-or-encash), the company caps carry-over and days would lapse, or a high-interest debt makes the cash immediately valuable. Check your true balance first with the leave balance calculator, and remember policies often freeze leave during notice — days you planned to take may become encashment by default (see the notice period calculator).
Common Encashment Disputes and Checks
- Balance disputes: HR systems miss half-days and credited leave — reconcile your own log against the final balance before your last day; corrections afterward are painful.
- Wrong salary base: encashment computed on basic alone when your structure includes DA, or on an old salary rather than last drawn — both understate the payout.
- "Notice month leave doesn't count" clauses: some policies exclude leave accrued during notice from encashment — legal but must be written policy, not improvisation.
- Caps: many companies cap encashable days (e.g. 30 or 60) below your actual balance — excess lapses, another reason not to hoard leave indefinitely.
- Timing: encashment is part of the FnF settlement, due within the settlement timeline — chase it with the same escalation path (HR → labour authority) as the rest of your full and final settlement.
For US/UK Readers
The equivalent concept is PTO payout (US — state-law driven, computed on full hourly rate; see the PTO payout calculator) and payment for untaken statutory holiday on termination (UK — required for the accrued statutory minimum). The Indian system's distinctive features are the Basic+DA base and the generous retirement tax exemption.
Frequently Asked Questions
How is leave encashment calculated?
Divide monthly Basic + DA by 30 for the per-day rate, then multiply by unused earned leave days. ₹45,000 with 32 days gives ₹48,000.
Is leave encashment taxable?
On exit, private-sector encashment is exempt up to the least of: actual amount, ₹25 lakh lifetime, 10 months' average salary, or 30 days per year of service. Encashment during employment is fully taxable.
Which leaves can be encashed?
Typically only earned/privilege leave. Casual and sick leave usually lapse; some PSUs encash sick leave at retirement. Company policy and state law set the specifics.
Is encashment calculated on gross salary or basic?
Almost always Basic + DA only — the same base as gratuity. Generous policies using gross salary exist but are the exception.
What is the ₹25 lakh exemption limit?
The lifetime cap on tax-free leave encashment at exit for private-sector employees under Section 10(10AA), raised from ₹3 lakh in 2023. It aggregates across all employers in your career.
Is it better to take leave or encash it?
Taking leave is usually worth more — a taken day costs the employer full gross while encashment pays only Basic+DA (40–60% of gross). Encash when exiting, when days would lapse, or when cash is urgently needed.
Can my employer refuse leave encashment on exit?
Earned leave encashment on exit is a statutory/contractual right in India and part of the FnF settlement. Refusal or underpayment can be escalated to the labour authorities.
Does leave accrued during notice period get encashed?
Usually yes, but some written policies exclude notice-period accrual. Leave taken during notice may also extend your end date — read both clauses before resigning.
Is there a limit on how many days I can encash?
Many companies cap encashable days (commonly 30–60) and the tax exemption separately caps at 30 days per year of service. Balances above caps lapse — don't hoard leave indefinitely.
How is leave encashment different from PTO payout?
Same concept, different math: US PTO payout uses the full hourly rate and state payout laws; Indian encashment uses Basic+DA ÷ 30 and Section 10(10AA) tax rules.
✓ Formula verified • Last updated: July 10, 2026