Leave encashment converts unused leave days into a cash payout, and how it’s taxed depends heavily on when you’re encashing it, a distinction that trips up a lot of people comparing an old payslip against an exit settlement. Here’s both the amount and an estimate of what’s tax-exempt if you’re encashing at retirement or resignation.
Leave encashed while you’re still actively employed is fully taxable as salary income, no exemption applies. Encashment at retirement or resignation is treated differently: government employees get it fully tax-exempt, while private-sector employees get an exemption up to the least of the amount received, a revised lifetime limit of ₹25,00,000 (raised from ₹3,00,000 in Budget 2023), and 10 months’ average salary. The actual computation also caps the exempt cash equivalent at 30 days per year of completed service, a detail that needs your full service history to model precisely, so treat the exemption estimate here as directional and confirm the exact figure with payroll.
This calculator uses a 26-day divisor, matching the convention used in our Gratuity Calculator, though some companies use 30, check your own leave policy for the exact method.
No, leave balance is the number of days you have accrued and unused; encashment is converting some or all of that balance into cash. Our Leave Balance Calculator helps you track the balance itself.
Usually only Earned/Privilege Leave is encashable, most companies don’t allow Casual or Sick Leave to be converted to cash. Check your specific leave policy, or use our Leave Accrual Calculator to see how each category has been building up.
Yes, the “at exit” exemption rules generally apply to both retirement and resignation for private-sector employees, this tool treats them the same way. Our guide to leave encashment covers the policy side in more depth.