Leave Encashment Calculator
Average salary, leave balance and years of service — see the encashment amount, the tax-free part and the taxable part.
Leave blank to work it out from the leave balance.
Result
- Leave encashment
- ₹3,60,000.00
- 10 months' average salary
- ₹6,00,000.00
- Cash value of 180 days
- ₹3,60,000.00
- Limit
- ₹25,00,000.00
- Tax-free
- ₹3,60,000.00
- Taxable
- ₹0.00
On retirement or resignation only — encashment while in service is fully taxable. The ₹25 lakh limit is lifetime.
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Quick answer
Leave encashment = Leave balance in days × (Basic + DA) ÷ 30. On retirement or resignation, a private-sector employee's encashment is tax-free up to the least of: the amount received, ₹25 lakh, 10 months' average salary, and the cash value of leave at up to 30 days per completed year. For government employees it is fully exempt.
| Amount | Leave days × (basic + DA) ÷ 30 |
|---|---|
| Tax-free limit (non-government) | ₹25 lakh, lifetime |
| Leave counted | Up to 30 days per completed year |
| In service | Fully taxable |
Leave encashment is the payment for earned leave not taken. Many employers allow a part of the balance to be encashed every year, and the rest is paid when the employee resigns or retires.
The tax treatment depends on when it is paid. Encashment while in service is fully taxable as salary. Encashment on retirement or leaving the job is exempt within limits — ₹25 lakh for non-government employees since April 2023. Rates and limits as of 12 October 2026.
The formula
- Leave encashment amount
Leave days × (Basic + DA) ÷ 30 (or ÷ 26, as per company policy)- Cash equivalent of leave
min(Leave balance, 30 days × completed years) × Average salary ÷ 30- Tax-free amount
Least of: received, ₹25 lakh, 10 × average salary, cash equivalent
Leave encashment calculation example
An employee resigns after 12 years with 180 days of earned leave and an average basic + DA of ₹60,000 over the last 10 months. Encashment = 180 × 60,000 ÷ 30 = ₹3,60,000. Ten months' salary is ₹6,00,000; the cash equivalent is 180 days (well within 30 × 12 = 360) = ₹3,60,000.
The least of ₹3,60,000, ₹25 lakh, ₹6,00,000 and ₹3,60,000 is ₹3,60,000 — so the whole amount is tax-free.
Leave encashment exemption rules
Average salary is the average of basic, DA (if it counts for retirement benefits) and turnover commission over the 10 months before leaving. Leave entitlement for the exemption is capped at 30 days for each completed year of service, whatever the company policy allows.
The ₹25 lakh limit is for a lifetime: exemptions claimed from earlier employers reduce it. Encashment received while still in service gets no exemption.
Keeping the leave balance right
The encashment is only as accurate as the leave balance behind it — leave earned, taken and already encashed over the years. Company policy decides how much can be carried forward and encashed; the tax limits above decide how much of the payment is tax-free. Payroll software that tracks leave per employee can compute both at exit.
Questions people ask.
How is leave encashment calculated?
Leave days × (basic + DA) ÷ 30. Some companies divide by 26 working days; check your leave policy.
How much leave encashment is tax-free?
For non-government employees on retirement or resignation, the least of the amount received, ₹25 lakh, 10 months' average salary and the cash value of leave at up to 30 days per year of service.
Is leave encashment taxable while in service?
Yes. Leave encashed while you continue in the job is fully taxable as salary.
Is the ₹25 lakh limit per employer?
No, it is a lifetime limit across all employers.
Is leave encashment tax-free for government employees?
Yes, on retirement it is fully exempt for central and state government employees.
Is leave encashment exempt in the new tax regime?
Yes — the retirement leave encashment exemption is available in both the old and the new regime.
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