Leave Encashment Calculator
Calculate the payout for unused earned leave and how much of it escapes tax under Section 10(10AA), including the ₹25 lakh lifetime ceiling.
Uses the ₹25 lakh exemption limit effective from 1 April 2023
Leave is valued on basic plus DA, not gross.
Retirement or resignation — the Section 10(10AA) exemption applies.
The ₹25 lakh ceiling is a lifetime limit across all employers.
Leave encashment
₹90,000
₹2,000.00 per day × 45 days
The whole amount is within the statutory limits, so none of it is taxable.
Remaining lifetime exemption after this: ₹24,10,000
Valuing the leave
Encashment converts unused leave into cash at a per-day rate derived from basic salary plus dearness allowance, divided by 30. Gross salary is not the basis, which surprises employees whose basic is a small share of CTC — a low basic means a low encashment rate, even on a high package.
Four limits, and the one that usually binds
For private-sector employees the exemption is the smallest of four figures. The 30-days per year cap is the one that most often binds, because generous leave policies let balances accumulate faster than the statute recognises. Someone with three years of service and 140 days accrued will only have 90 days counted.
The ₹25 lakh ceiling only matters at senior levels, but it is worth knowing that it is a lifetime figure. If you claimed ₹10 lakh of exemption when leaving a previous employer, only ₹15 lakh of headroom remains for the rest of your career.
Timing changes everything
The exemption exists only for payments made on retirement or resignation. Many employers allow employees to encash a few days each year while still in service — that money is fully taxable. If you have a choice, carrying leave to exit is more tax efficient, subject to whatever your policy allows you to accumulate.
Which leave types qualify
Earned or privilege leave is normally encashable. Casual leave and sick leave usually lapse at year end or at exit and are not paid out. The distinction sits in your employer's leave policy rather than in tax law, so it is the policy document that decides what actually reaches the settlement.
Frequently asked questions
- How is leave encashment calculated?
- Unused leave days are valued at basic salary plus dearness allowance divided by 30, giving a per-day rate, multiplied by the number of days being encashed. Gross salary is not used — only basic and DA.
- How much leave encashment is tax-free?
- For non-government employees the exemption is the least of four amounts: the amount actually received, ten months' average salary, leave capped at 30 days per completed year of service, and ₹25 lakh. Government employees receive it fully exempt.
- Was the exemption limit really raised to ₹25 lakh?
- Yes. It was ₹3 lakh for many years and was raised to ₹25 lakh with effect from 1 April 2023. The ceiling is a lifetime aggregate across all employers, so exemption claimed at a previous job reduces what remains available.
- Is leave encashment taxable if I take it while still working?
- Yes, fully. The Section 10(10AA) exemption only applies when payment is made on retirement or resignation. Encashment taken during service is added to salary and taxed at your slab rate.
- Why is my exemption capped at 30 days per year?
- The statute values eligible leave at a maximum of 30 days for each completed year of service, regardless of how generous your employer's leave policy is. An employee with five years of service can therefore have at most 150 days counted, even if their balance is higher.
- Can the employer refuse to encash leave?
- That depends on the leave policy and the applicable state shops and establishments legislation. Earned or privilege leave is generally encashable on exit; casual and sick leave usually lapse. Check what your policy says each leave type does at separation.
Related free tools
- Full & Final Settlement Calculator
Work out an exit settlement with pending salary, leave encashment, gratuity, notice pay and recoveries.
- Gratuity Calculator
Calculate gratuity from your last drawn salary and years of service, including the tax-free limit.
Do you actually know your team's leave balances?
Leave encashment is only as accurate as the balance behind it, and reconstructing a year of approvals from email at exit time is how disputes start. Smart Dhandha tracks accruals, approvals and balances per employee continuously, so the exit figure is already there.
- Leave balances tracked per employee, per type
- Approval history retained and auditable
- Feeds straight into the exit settlement
This tool is provided free for general guidance and uses the rates noted above. Statutory rates change, and individual circumstances differ — please confirm with your accountant or a qualified professional before relying on these figures for filing or payroll.