Free tool
Leave encashment calculator
Leave encashment is monthly basic pay plus DA ÷ 30 × unused leave days, so 45 days on ₹60,000 is ₹90,000. Encashed while you are employed, it is taxed as salary. Encashed when you leave, it is tax-free up to the least of four limits, with a ceiling of ₹25,00,000 for private-sector employees.
Leave encashment
₹90,000
Tax-free₹90,000
Taxable as salary₹0
Tax-free is the least of
Leave credit, max 30 days a year₹90,000
10 months’ average salary₹6,00,000
Limit left of ₹25,00,000₹25,00,000
Amount received₹90,000
Estimates for general information, using rules checked 22 October 2026. Not tax or legal advice. Nothing you enter leaves your browser.
How is leave encashment calculated?
Divide monthly basic pay plus DA by the days in a month your policy uses, then multiply by the unused leave days. An employee leaving after 7 years with 45 days of earned leave and basic plus DA of ₹60,000:
| Policy counts a month as | Calculation | Leave encashment |
|---|---|---|
| 30 calendar days | ₹60,000 ÷ 30 × 45 | ₹90,000 |
| 26 working days | ₹60,000 ÷ 26 × 45 | ₹1,03,846 |
Which divisor applies, and whether DA or other allowances count, is set by your leave policy or appointment letter, and by your state’s shops and establishments law.
Is leave encashment taxable?
It depends on when it is paid.
While you are employed, for example when a company pays out leave above a carry-forward limit each year, leave encashment is salary and fully taxable.
When you leave, on retirement whether on superannuation or otherwise, central and state government employees get the full amount tax-free. Everyone else gets the least of four amounts tax-free (Income-tax Act 2025, section 19):
- Leave credit at exit, counting at most 30 days for each completed year of service, valued at average salary.
- 10 times the average monthly salary of the last 10 months.
- ₹25,00,000, the limit notified from 1 April 2023, less anything exempted at earlier jobs.
- The leave encashment actually received.
Salary here means basic pay plus DA (if the terms of employment include it), and no other allowances or perquisites.
A worked example with a taxable part
An employee leaves after 8 completed years with 270 days of leave and basic plus DA of ₹60,000 throughout. They receive ₹5,40,000.
| Limit | Amount |
|---|---|
| Leave credit: 8 years × 30 days = 240 days, at ₹60,000 a month | ₹4,80,000 |
| 10 months’ average salary | ₹6,00,000 |
| Notified limit | ₹25,00,000 |
| Amount received | ₹5,40,000 |
The least is ₹4,80,000, so that much is tax-free and ₹60,000 is taxed as salary.
When is leave encashment paid?
At exit, with the full and final settlement, which the Code on Wages requires within two working days of the last day. Gratuity follows its own 30-day rule; see the gratuity calculator.
Work it out for every leaver
In Peoplo.ai, the exit coordinator agent reads the leave balance and pay from the employee record, counts the encashable leave and prepares the full and final settlement. A person approves it before anything is paid.
How it is worked out
Leave encashment is monthly basic pay plus DA ÷ days in a month × unused leave days, with 30 or 26 days as your policy says.
At exit, the tax-free part for a private-sector employee is the least of the four limits shown. Leave credit counts at most 30 days for each completed year and is valued at the average salary of the last 10 months, divided by 30. Leave encashed while employed is fully taxable.
General information, not tax advice. The calculator does not check your leave policy or state law on how much leave can be carried forward or encashed.
Sources · checked 22 October 2026
Questions
Frequently asked questions
Short answers, worked out with the same rules as the calculator above.
How is leave encashment calculated?
Basic pay plus DA for a month, divided by the days your policy counts in a month (usually 30, sometimes 26 working days), multiplied by the number of unused leave days. With ₹60,000 and 45 days, that is ₹60,000 ÷ 30 × 45 = ₹90,000.
Is leave encashment taxable?
Leave encashed while you are still employed is fully taxable as salary. Leave encashed when you leave is tax-free up to the least of four limits; for private-sector employees the overall ceiling is ₹25,00,000. Central and state government employees are fully exempt.
What is the leave encashment exemption limit for private employees?
₹25,00,000, notified by the CBDT from 1 April 2023 (Notification 31/2023). It is a lifetime limit across all employers, so any amount exempted at an earlier job reduces it.
Is leave encashment on resignation tax-free?
The exemption applies to leave encashed at retirement, whether on superannuation or otherwise. It is generally read to include resignation, so the same four limits apply. Leave encashed while you stay in the job does not qualify.
Is leave encashment calculated on basic or gross salary?
Usually on basic pay plus dearness allowance; your leave policy or appointment letter decides. For the tax exemption, salary means basic plus DA (if the terms of employment include it), and excludes other allowances and perquisites.
Is leave encashment part of full and final settlement?
Yes. Unused earned leave that your policy lets you encash is paid with the full and final settlement, which the Code on Wages requires within two working days of the last day.