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Leave encashment calculator
Find the value of unused leave from monthly basic + DA and the number of days, using a 26-day or 30-day divisor, and see how the payment is taxed.
How leave encashment is calculated
Leave encashment pays an employee for leave they have earned but not taken. The value of each day is usually the monthly salary divided by a fixed number of days. Most policies use basic + DA as the salary. Some include other allowances, so check yours before you enter a figure.
The divisor is set by company policy, the applicable state rules or the employment contract. A 30-day divisor treats every calendar day, including weekly offs, as paid. A 26-day divisor counts only working days, so each day is worth more.
Worked example
An employee with basic + DA of ₹30,000 a month leaves with 15 days of earned leave. The policy uses a 30-day divisor.
- Per-day rate: ₹30,000 ÷ 30 = ₹1,000.
- Leave encashment: ₹1,000 × 15 = ₹15,000.
Under a 26-day policy, the per-day rate is ₹30,000 ÷ 26 = ₹1,153.85, and 15 days come to ₹17,307.69, rounded to ₹17,308. The same leave is worth ₹2,308 more.
When leave is encashed
There are two common situations:
- During service. Some employers let employees encash part of their earned leave every year, often above a minimum balance.
- At exit. On resignation, retirement or termination, the unused earned leave balance is usually paid out in the full and final settlement.
Casual and sick leave are generally not encashable, but that too depends on policy. For workers in factories and establishments, state laws also set how much earned leave accrues and whether unused leave must be paid on leaving. Check the rules that apply in your state.
How leave encashment is taxed
The tax treatment depends on when the leave is encashed and who the employer is:
| Situation | Tax treatment |
|---|---|
| Encashed while still in service | Fully taxable as salary |
| At retirement or resignation, non-government employee | Exempt up to ₹25 lakh (limit raised from ₹3 lakh from 1 April 2023); the rest is taxable |
| At retirement or resignation, government employee | Fully exempt |
For non-government employees, the exempt amount is actually the lowest of a few figures, including ₹25 lakh, 10 months' average salary and the cash value of leave earned under the rules. The ₹25 lakh limit applies across all employers over a career, not per job. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, so confirm the current provisions with your CA before claiming the exemption. The taxable part is included in salary for TDS; the salary TDS calculator can help estimate it.
Limits of this calculator
- It uses one salary figure for all the days. If your policy averages salary over the last few months, enter that average.
- It does not check your leave balance or caps on how many days can be encashed.
- Half days are allowed; enter them as 0.5.
Swastik Payroll keeps leave balances per employee. Casual leave accrues on the 1st of every month and approved leave updates attendance. See leave management for how balances are tracked. Encashment is often paid alongside gratuity at exit; the gratuity calculator covers that part.
Leave encashment FAQs
Should I use 26 or 30 days?
Follow your leave policy or appointment letter. If it is silent, many employers use 30 for monthly-paid staff and 26 where only working days are paid. Using 26 always gives the employee a higher amount.
Is leave encashment part of gross salary?
It is paid through payroll and shown on the payslip or the full and final statement. For tax it is treated as salary, with the retirement exemption applied where eligible.
Is PF deducted on leave encashment?
Leave encashment is generally excluded from PF wages, so PF is not deducted on it. Check how your establishment treats it if you are unsure.
Is encashment on resignation tax-free?
For non-government employees, it is exempt up to ₹25 lakh over the whole career, subject to the other limits in the formula. Encashment taken every year during service does not get this exemption.
Results are estimates for planning. Statutory rates, ceilings and tax rules change; check the current notifications or consult your CA before using a figure for payroll or tax filing.
Stop calculating payroll by hand
Swastik Payroll applies these rules to every employee automatically, straight from attendance, and produces payslips and PF/ESIC files.