Leave encashment is the payment you receive for unused earned/privilege leave when you resign, retire, or in some cases during your service period. Understanding the formula and tax implications helps you plan your exit or retirement financially.
Leave Encashment Formula
Leave Encashment = (Basic Salary + DA) ÷ 26 × Number of Unused Leave Days
Most companies use 26 working days per month for calculation. Some use 30 calendar days — check your company policy.
Types of Leave Encashment
| Scenario | Taxability | Exemption |
|---|---|---|
| Government employee — retirement | Fully exempt | No limit |
| Private employee — retirement/death | Partially exempt | Up to ₹25 lakh |
| Resignation (any employee) | Taxable | No exemption |
| Encashment during service | Taxable | No exemption (Old Regime) |
Example: Leave Encashment at Retirement
Private employee retiring with 60 unused days. Last basic + DA: ₹80,000/month.
Encashment = ₹80,000 ÷ 26 × 60 = ₹3,076.92 × 60 = ₹1,84,615
Tax: Since ₹1,84,615 is below ₹25 lakh limit — fully exempt from tax.
Can You Carry Forward Unused Leave?
Most companies allow carrying forward earned leave up to a cap (typically 30–60 days). Unused leave beyond the cap is automatically encashed or lapsed as per company policy. Check your employment contract for specific rules. Use our Leave Encashment Calculator for your exact payout.