Leave Encashment Calculator
Leave encashment is the money an employer pays for leave you did not take. It is usually paid when you retire or leave the job, and sometimes while you are still in service. The tax treatment depends on when and from whom you receive it.
Last reviewed:
- Leave encashment received
- ₹13,33,333
- Exempt from tax
- ₹10,00,000
- Taxable as salary
- ₹3,33,333
- Value of one day's leave
- ₹3,333.33
- Exemption applies to leave encashed on retirement or leaving, under old and new regime rules as per the Income Tax Department's guidance. The ₹25 lakh limit applies to the total across all employers. Confirm the current rules.
How the exemption is limited
| Limit | Amount |
|---|---|
| Actual amount received | ₹13,33,333 |
| 10 months' average salary | ₹10,00,000 |
| Statutory limit | ₹25,00,000 |
| Cash value of leave entitlement | ₹13,33,333 |
This calculator works out the amount from your average salary and the days encashed. It also shows how much is exempt from tax and how much is taxable.
How to use this calculator
- Enter your average monthly salary for the last 10 months (basic plus dearness allowance).
- Enter the number of leave days encashed.
- Choose whether it is on leaving or during service, and the type of employer.
- Enter years of service and leave already taken, then read the exempt and taxable amounts.
Formula and variables
Encashment = Average monthly salary ÷ 30 × Leave days Exempt = the least of: amount received, 10 × average monthly salary, ₹25,00,000, and the cash value of the leave entitlement
- Entitlement - 30 days of leave for each year of service, less leave already taken or encashed.
- ₹25,00,000 - the overall exemption limit for leave encashed on retirement or leaving, across employers.
Central and state government employees get the whole amount exempt on retirement. During service, leave encashment is fully taxable.
Worked example
A private-sector employee retires after 20 years with an average monthly salary of ₹1,00,000 and encashes 400 days of leave, having taken 100 days earlier.
| Salary and leave encashed | ₹1,00,000 and 400 days |
|---|---|
| Service and leave taken | 20 years and 100 days |
| Encashment received | ₹13,33,333 |
| Exempt from tax | ₹10,00,000 |
| Taxable | ₹3,33,333 |
- Per-day value = 1,00,000 ÷ 30 = ₹3,333.33, so 400 days gives ₹13,33,333.
- The four limits are ₹13,33,333, ₹10,00,000 (10 months' salary), ₹25,00,000 and the entitlement (500 days, so all 400 days).
- The lowest is ₹10,00,000, so ₹3,33,333 is taxable as salary.
What changes the result
- Timing. Encashment while you are working is fully taxable. The exemption is for retirement or leaving.
- Employer type. Government employees are fully exempt on retirement.
- Salary definition. Basic, dearness allowance and some commission count. Other allowances do not.
- Earlier encashments. Amounts received from earlier employers count towards the ₹25 lakh limit.
Benefits and practical uses
- Estimate the cash you will receive.
- See how much will be taxed.
- Plan for retirement or a job change.
Assumptions and limitations
- A month is taken as 30 days when finding the value of a day.
- Leave entitlement is 30 days for each completed year of service. Your employer's rules may differ.
- The ₹25 lakh limit is applied to this payment alone. Earlier amounts are not tracked.
- Tax slab effects on the taxable part are not calculated here.
Frequently asked questions
What is leave encashment?
A payment from the employer for unused leave, usually on retirement or leaving, and sometimes during service.
Is leave encashment taxable?
It is taxable as salary while you are in service. On retirement or leaving, a part is exempt for non-government employees, and the whole is exempt for government employees.
What is the exemption limit?
The least of the amount received, 10 months' average salary, ₹25,00,000, and the cash value of the leave entitlement. Check the Income Tax Department for the current rules.
Which salary is used?
The average of the last 10 months before retirement, with basic pay, dearness allowance and some commission.
How many leaves can I accumulate?
It depends on your employer's policy. The tax rules count 30 days of entitlement for each year of service.
References
Page last reviewed on . This calculator gives estimates for planning only; it is not financial advice and not an offer from any lender.