Leave Encashment Calculator — India
In brief
Enter basic + DA, employment type, reason, and earned-leave balance. You get encashable days, per-day value, gross amount, and the tax status: fully exempt (government), within the ₹25 lakh Section 10(10AA) cap (private sector retirement/resignation), or fully taxable (annual in-service payout).
Leave encashment is the cash payout employees receive at exit (resignation,
retirement, end-of-contract) for unused privilege/earned leave. The formula in India is
(monthly basic + DA) ÷ 30 x encashable leave days. For private-sector employees,
leave encashment received at retirement or resignation is exempt from income tax up to
₹25 lakh under Income Tax Act Section 10(10AA)(ii), as per the 2023 amendment.
Government employees are fully exempt under Section 10(10AA)(i).
Encashable days
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Per-day value
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Gross encashment
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Estimates only. Confirm tax treatment with a CA — actual TDS depends on total income and section 89(1) relief if applicable.
How the Section 10(10AA) cap works
The ₹25 lakh exemption under Section 10(10AA)(ii) is a lifetime cumulative cap across all employers — not per employer or per encashment. If you've already received ₹10 lakh tax-free at a previous job, only ₹15 lakh remains for future encashments. This figure was raised from ₹3 lakh to ₹25 lakh by the Finance Act 2023, effective FY 2023-24, and applies only to non-government employees on retirement, resignation, or end of contract.
Government employees (central, state, defence) get a full exemption under Section 10(10AA)(i) with no cap. PSU employees follow the non-government rule and are subject to the ₹25 lakh cap.
How to use this calculator
- Enter monthly basic + DA. The formula uses (basic + DA) ÷ 30 as the per-day rate. HRA, special allowance, conveyance, and reimbursements are excluded — only basic pay and dearness allowance count for Section 10(10AA) purposes.
- Pick employment type and reason. Government employees are fully exempt under Section 10(10AA)(i). Private-sector and PSU employees claim exemption only for retirement, resignation, or end-of-contract — annual in-service payouts are taxable salary.
- Enter leave balance and caps. Total earned leave accrued, days already availed this year, plus your company's carry-forward limit and encashment cap. Carry-forward typically caps at 30 to 60 days; encashment cap is often 30 days at a time but varies by company.
- Read the result and tax note. You get encashable days, per-day value, gross amount, and a tax-exemption indicator: fully exempt (govt), ₹25 lakh cap status (private), or fully taxable (annual encashment).
Frequently asked questions
How is leave encashment calculated in India?
The standard formula is (monthly basic + DA) ÷ 30 x encashable leave days. Encashable days are typically the unused privilege/earned leave balance, often capped by company policy at a carry-forward or encashment limit. Casual and sick leave are usually not encashable.
Is leave encashment taxable for private-sector employees?
Leave encashment received on retirement or resignation by non-government employees is exempt up to ₹25 lakh under Income Tax Act Section 10(10AA)(ii) — a lifetime cap across all employers, raised from ₹3 lakh by the Finance Act, 2023 (effective FY 2023-24). Anything above ₹25 lakh is taxable as salary. In-service annual encashment is fully taxable as salary under Section 17(1).
What is the ₹25 lakh exemption under Section 10(10AA)?
Section 10(10AA)(ii) of the Income Tax Act exempts leave encashment received at retirement (including resignation) by a non-government employee, up to a lifetime aggregate of ₹25 lakh. Government employees enjoy a full exemption under Section 10(10AA)(i) without any cap. The ₹25 lakh threshold is a cumulative cap — any prior encashment from earlier employers reduces the remaining limit.
Can casual leave (CL) or sick leave (SL) be encashed?
Most Indian companies do not encash casual or sick leave — they are designed to lapse at year-end. Only earned leave (EL) or privilege leave (PL) is typically encashable. Some PSUs and large enterprises encash half-pay leave or commuted leave, but rules differ. Check your appointment letter or HR policy.
How does leave encashment work at retirement vs resignation?
Both qualify for the Section 10(10AA) exemption for non-government employees — the ₹25 lakh cap applies in either case. The distinction is in-service annual encashment — paid out while still employed — which is fully taxable as salary under Section 17(1) and does not reduce the ₹25 lakh lifetime cap.
Related reading
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