How to use the leave encashment calculator
- Choose whether the leave is encashed on leaving the job or while still in service.
- Enter your last drawn monthly basic pay plus DA and the earned leave days being encashed.
- Enter your completed years of service and whether your employer is the government.
- Optionally add your 10-month average salary, leave already used and any exemption claimed with earlier employers.
- Read the payout, the tax-free part, which of the four limits applies, and the tax on the rest at your slab.
How leave encashment is calculated
Leave encashment = earned leave days × (basic + DA) ÷ 30
Example: with ₹80,000 basic plus DA a month and 180 days of earned leave, the payout is ₹4,80,000. After 8 years of service, up to 240 days count for tax, so on resignation the whole amount is tax-free. If the same leave were encashed while still in the job, ₹4,80,000 would be taxable.
With 300 days of leave the payout rises to ₹8,00,000, but only ₹6,40,000 is tax-free: 8 years allow 240 days, and the other ₹1,60,000 is taxed as salary.
Which limit applies: four examples
On leaving a private-sector job with no earlier claim, leave paid at basic plus DA ÷ 30. Each row shows a different limit at work.
| Basic + DA a month | Leave | Service | Leave encashment | Tax-free | Taxable | Limit that applies |
|---|---|---|---|---|---|---|
| ₹50,000 | 120 days | 5 years | ₹2,00,000 | ₹2,00,000 | ₹0 | Amount received |
| ₹1,00,000 | 300 days | 8 years | ₹10,00,000 | ₹8,00,000 | ₹2,00,000 | Leave at 30 days a year |
| ₹1,00,000 | 400 days | 20 years | ₹13,33,333 | ₹10,00,000 | ₹3,33,333 | 10 months' salary |
| ₹3,00,000 | 300 days | 20 years | ₹30,00,000 | ₹25,00,000 | ₹5,00,000 | ₹25 lakh limit |
A long leave balance is capped first by 30 days a year of service, then by 10 months' salary. At high salaries the ₹25 lakh career limit applies.
Rules at a glance
| Situation | Tax treatment |
|---|---|
| Encashed while in service | Fully taxable as salary |
| Government employee, on retirement | Fully exempt |
| Other employees, on retirement or resignation | Least of four limits, up to ₹25 lakh over a career |
| Paid to legal heirs after death | Not taxable |
The exemption sits in Section 19 (Table: Sl. No. 13 and 14) of the Income-tax Act, 2025 (earlier Section 10(10AA)). The ₹25 lakh figure was notified from 1 April 2023 (CBDT Notification No. 31/2023) and applies across all employers in your career. Gratuity has a separate ₹20 lakh limit; see the gratuity calculator.
Frequently asked questions
Is leave encashment taxable?
Leave encashed while you are still in the job is fully taxable as salary. Leave encashed on retirement or resignation is fully tax-free for central and state government employees. For everyone else, part or all of it is tax-free, up to ₹25 lakh over a whole career.
How is the tax-free part of leave encashment calculated?
For non-government employees, the tax-free part is the least of four amounts: the leave encashment received, 10 months' average salary, the cash value of earned leave at no more than 30 days for each year of service, and ₹25 lakh less any exemption claimed earlier. Salary here means basic pay plus DA, averaged over the 10 months before you leave.
Is leave encashment on resignation tax-free?
Yes, within the same limits as on retirement: the law covers retirement "whether on superannuation or otherwise", which includes resignation. With ₹80,000 basic plus DA, 8 years of service and 180 days of leave, the whole ₹4,80,000 is tax-free.
What is the ₹25 lakh limit on leave encashment?
The government raised the tax-free limit for non-government employees from ₹3 lakh to ₹25 lakh from 1 April 2023. It is a lifetime limit across all employers: any amount claimed tax-free on leaving an earlier job is subtracted from it.
Is the leave encashment exemption available in the new tax regime?
Yes. The exemption is a deduction from salary under Section 19 of the Income-tax Act, 2025 (earlier Section 10(10AA)) and applies in both the old and new regimes for tax year 2026-27.
How is leave encashment calculated by employers?
Most employers pay one day's leave salary as monthly basic plus DA divided by 30, times the earned leave days at your credit. Some divide by 26 working days, and some include other pay; the leave policy says which. The tax-free limit always values leave at average salary divided by 30.
Is leave encashment received by a family on an employee's death taxable?
Leave encashment paid to the legal heirs after an employee's death is not taxed as salary, so it is not taxable in their hands.