₹50,000 basic plus DA, 90 days, retiring from a private job
Daily rate ₹1,667. Encashment ₹1,50,000, fully tax-free because it is under the exemption cap.
Leave encashment calculator
Encashment is basic plus DA, divided by 30 days, times the days. On retirement or leaving, a private-sector employee's exemption is the least of the amount received, ₹25 lakh and 10 months' average salary; the leave entitlement limit of 30 days per year of service also applies. Central and state government employees are fully exempt. Confirm with your employer.
50 thousand
days
Days in a month for the daily rate
When is it paid?
Leave encashment
₹1,50,000
₹1,667 a day for 90 days. ₹1,50,000 is exempt and ₹0 is taxable at your slab.
- Daily rate
- ₹1,667
- Tax-exempt
- ₹1,50,000
- Taxable
- ₹0.00
Leave encashment: amount and tax, step by step
Unused leave has a cash value, and companies pay it out when you leave or retire. The calculation is easy, but the tax part trips people up.
Take basic plus dearness allowance of ₹50,000 and 90 days of leave. The daily rate over a 30-day month is ₹1,667, so 90 days is ₹1,50,000. If you encash it at retirement from a private job, the exemption is the lowest of the amount, ₹25 lakh, and 10 months' average salary, which is ₹5 lakh here. The amount is below all of these, so none of it is taxed.
Encashing while you continue to work is different. That payout is salary and is taxed at your slab, though you can claim relief under section 89 in some cases.
If your employer uses 26 days as the divisor, the daily rate becomes about ₹1,923 and the payout is higher. Check the policy, and check the leave balance on your payslip before the full and final settlement.
Sources
What this calculator does not account for
- Your employer's divisor and leave policy.
- Section 89 relief.
- The latest exemption limit.
How this is calculated
Formula: Leave encashment
amount =(basic + DA) ÷ 30 × days of leaveWhat the symbols mean
- basic + DAMonthly basic pay plus dearness allowance.
- daysUnused earned leave days you are paid for.
Good to know
- Some employers divide by 26 instead of 30. You can change the divisor.
- Private-sector exemption is the lowest of the amount received, ₹25 lakh, 10 months' average salary, and the leave entitlement.
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Worked examples
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<iframe src="/embed/leave-encashment-calculator" title="Leave encashment" width="100%" height="720" style="border:0;max-width:42rem" loading="lazy"></iframe>Questions
Is leave encashment taxable?
While in service it is fully taxable as salary. On retirement or resignation, part or all may be exempt under section 10(10AA).
What is the exemption limit?
For private employees, the least of the actual amount, ₹25 lakh, 10 months' average salary, and the cash equivalent of leave earned. Government employees are fully exempt.
Which salary counts?
Basic plus dearness allowance, and any commission that is a fixed percentage of turnover. Other allowances usually do not.
How many days are allowed per year?
Many employers give 30 days of earned leave per year of service, which sets the entitlement limit for tax purposes.