Leave Encashment Calculator India 2025
Government & Private sector · Section 10(10AA) · Tax-free limit ₹25 lakh
Enter Your Details
Monthly Basic + DA, leave days, and employee type
Earned / Privilege Leave days
Your Encashment vs Tax-Free Limit (₹25 Lakh)
Taxable Amount Alert
Government employees receive fully tax-free leave encashment on retirement/superannuation with no upper limit under Section 10(10AA)(i) of the Income Tax Act.
Leave Encashment During Service is Fully Taxable
The Section 10(10AA) exemption does not apply to leave encashed during service. Your entire encashment amount will be added to taxable income and taxed at your applicable income slab rate.
Step-by-Step Calculation
Detailed Inputs
Separate Basic & DA, service dates, accrual settings
Salary Details
Service Period
Leave Settings
Private: 15–18 | Govt: 30
Govt: 300 | Private: varies
Leave blank to auto-calculate
Reason for Encashment
Your Encashment vs Tax-Free Limit (₹25 Lakh)
Taxable Amount Alert
Government employees receive fully tax-free leave encashment on retirement under Section 10(10AA)(i) — no upper limit applies.
Encashment During Service — Fully Taxable
Section 10(10AA) exemption does not apply. The full amount will be taxed at your applicable income slab rate.
Step-by-Step Calculation
Scenario Comparison: Encash Now vs At Retirement
Comparison at current salary — illustrative only
| Scenario | Days | Encashment Amount | Tax-Free | Taxable |
|---|
Year-by-Year Leave Accumulation
| Year | Days Accrued | Cumulative Balance | Encashment Value | Status |
|---|
Leave Encashment Formulas — Quick Reference
Per Day = (Basic + DA × 12) ÷ 300
Encashment = Per Day × Leave Days
300 = 30 days × 10 months | Fully tax-free
Per Day = Monthly Salary ÷ 26
Encashment = Per Day × Leave Days
26 = working days/month | Tax-free up to ₹25L
Tax-free limit (private): ₹25,00,000 (revised April 2023) | Govt: unlimited tax-free | Max encashable: 300 days (Central Govt) | During service: fully taxable for all
Worked Examples
Govt Employee — 300 Days
Basic ₹60,000 + DA ₹10,000/mo, retirement with 300 days
= ₹2,800
Encashment = 2,800 × 300
= ₹8,40,000
Fully tax-free (Govt employee)
Private — Resignation 20 Days
Monthly salary ₹50,000, resignation with 20 days EL
= ₹1,923.08
Encashment = 1,923.08 × 20
= ₹38,461.54
Tax-free (below ₹25L limit)
Private — Retirement 120 Days
Monthly salary ₹2,00,000, retirement with 120 days EL
= ₹7,692.31
Encashment = 7,692.31 × 120
= ₹9,23,076.92
Tax-free (below ₹25L limit)
Understanding Leave Encashment in India
Leave encashment — also referred to as leave salary — is a cash payment made by an employer to an employee in lieu of unutilised earned leave or privilege leave. It is one of the most commonly misunderstood payroll benefits in India, primarily because the tax treatment differs significantly based on the employee's sector, the reason for encashment, and the timing of the payment.
What is Section 10(10AA)?
Section 10(10AA) of the Income Tax Act, 1961 governs the tax exemption on leave encashment. It provides full exemption for government employees and a ceiling-based exemption for private sector employees. The section applies to leave encashment received at the time of retirement, superannuation, or on leaving employment — not for encashment during active service.
Leave Encashment Formula — Government vs Private
The per-day salary formula differs between sectors:
- Government employees: Per Day Salary = (Annual Basic + DA) ÷ 300. The 300 is derived from 30 days × 10 months, consistent with the leave rules applicable to Central Government employees.
- Private sector employees: Per Day Salary = Monthly Salary ÷ 26, where 26 represents the average number of working days in a month.
The Leave Encashment Amount = Per Day Salary × Number of Leave Days to be Encashed.
Tax Treatment of Leave Encashment — Section 10(10AA)
| Employee Category | At Retirement / Separation | During Service |
|---|---|---|
| Central / State Government | Fully tax-free (no upper limit) | Fully taxable |
| Private Sector (retirement) | Tax-free up to ₹25,00,000 (revised April 2023) | Fully taxable |
| Private Sector (resignation) | Tax-free up to ₹25,00,000 | Fully taxable |
The ₹25 lakh limit is a lifetime aggregate limit across all employers. If you have received tax-exempt leave encashment in a previous job, that amount must be deducted from the ₹25 lakh ceiling.
Tax-Free Limit Revised to ₹25 Lakh (April 2023)
Prior to April 1, 2023, the tax-free limit on leave encashment for private sector employees was ₹3 lakh — a limit that had been unchanged since 2002. The Union Budget 2023 revised this ceiling to ₹25,00,000, providing significant relief to retiring employees, especially senior executives whose leave encashment amounts can be substantial. The revision aligns the private sector ceiling closer to the unlimited exemption enjoyed by government employees.
Key Rules for Leave Encashment
- Government employees — maximum 300 days: Central Government employees can encash a maximum of 300 days of Earned Leave at the time of retirement. Some state governments have different caps.
- No mid-service encashment for Central Govt: Central Government employees cannot encash leave during service. Encashment is allowed only at retirement, on transfer (in some cases), or on death.
- Private sector — company policy governs: For private employees, the maximum leave that can be encashed depends entirely on the employer's leave policy. Many companies cap it at the accumulated earned leave balance, often 30–45 days per year.
- Earned Leave vs Privilege Leave: Both EL and PL are typically the types eligible for encashment. Sick leave and casual leave are generally not encashable.
Leave Encashment on Death of Employee
If an employee dies while in service, their legal heirs are entitled to receive the leave encashment amount for the unutilised leave balance. This amount is fully tax-free in the hands of the legal heirs, regardless of sector. There is no minimum service requirement for such payments, and the ₹25 lakh ceiling does not apply in case of death.