Leave Encashment Calculator India 2026
Instantly calculate your leave encashment payout, Section 10(10AA) tax exemption, taxable amount & net payout — for government and private employees across resignation, retirement & annual modes.
Encashment Breakdown
Exemption Limits Comparison
| Metric | Amount / Value | Notes |
|---|
What is Leave Encashment?
Leave encashment (also called "leave salary" or "encashment of earned leave") is a monetary payment made by an employer to an employee for unused earned/privilege leave days that were not availed during their employment. Instead of losing these accumulated leave days, employees receive cash compensation equivalent to their per-day salary multiplied by the number of unused eligible leave days.
Leave encashment can arise at multiple points in an employee's career: at the time of resignation or termination, upon retirement, or even during service if the employer's leave policy permits annual encashment of excess accumulated leaves. In the unfortunate event of the death of an employee, their legal heirs are entitled to receive the full leave encashment amount — 100% tax-free.
It is governed by Section 10(10AA) of the Income Tax Act (now consolidated under the Income Tax Act 2025 effective April 1, 2026), which provides significant tax exemptions depending on the employee category, mode of encashment, and the amount received.
How to Use This Leave Encashment Calculator
Our calculator computes your gross payout, Section 10(10AA) exempt amount, taxable portion, tax liability, and net in-hand amount in real time. Here's how to use it:
Select Employee Type
Choose Government (central/state) or Private/Non-Government. Government employees get 100% tax exemption with no ceiling. Private employees are exempt up to ₹25 lakh under Section 10(10AA) — subject to the four-limit formula.
Select Calculation Mode
Choose Resignation, Retirement, During Service (Annual), or Death of Employee. This is critical — leave encashment during service is fully taxable for all employees. The Section 10(10AA) exemption only applies at retirement or resignation.
Enter Basic Salary + DA
Enter your monthly Basic Salary and Dearness Allowance (DA). Note: Only Basic + DA is used in the leave encashment formula. HRA, conveyance allowance, LTA, incentives, and other allowances are excluded from the calculation.
Enter Unused Leave Days & Years of Service
Enter the total number of unused earned/privilege leave days you have accumulated. Also enter years of completed service — this is used to calculate the statutory cap of 30 days per year for private employees.
Choose Working Days Divisor & Tax Slab
Select 26 days (standard for most private companies, excludes Sundays) or 30 days (calendar days, common for government calculations). Select your applicable income tax slab rate to compute tax liability on the taxable portion.
Leave Encashment Formula
The standard formula used by all employers in India to calculate leave encashment is:
Basic Salary + DA = Monthly eligible salary components (HRA and other allowances excluded)
Working Days = 26 (private companies) or 30 (government / calendar-based companies)
Eligible Leave Days = Number of unused earned/privilege leave days being encashed
Step-by-Step Breakdown
- Step 1: Per Day Salary = (Basic + DA) ÷ Working Days Per Month
- Step 2: Gross Encashment = Per Day Salary × Eligible Leave Days
- Step 3: Determine Exemption under Section 10(10AA) (see below)
- Step 4: Taxable Encashment = Gross Encashment − Exemption
- Step 5: Tax Payable = Taxable Encashment × Applicable Tax Slab Rate
- Step 6: Net Payout = Gross Encashment − Tax Payable
Note on Divisor (26 vs 30 days): Using 26 days gives a higher per-day salary and therefore higher encashment. Always check your appointment letter or company HR policy to confirm which divisor applies to you.
Leave Encashment Calculation Examples (2026)
Example 1: Government Employee — Retirement (Fully Exempt)
Profile: Mr. Sharma, Central Government employee, retiring after 30 years. Basic + DA = ₹80,000/month. Unused earned leave = 240 days.
- Per Day Salary: ₹80,000 ÷ 30 = ₹2,667
- Gross Encashment: ₹2,667 × 240 = ₹6,40,000
- Tax Exempt: 100% of ₹6,40,000 = ₹6,40,000 (Government employees — fully exempt, no cap)
- Taxable Amount: ₹0
- Net In-Hand: ₹6,40,000
Example 2: Private Employee — Resignation (Partially Exempt via 4-Limit Formula)
Profile: Ms. Priya, private sector, resigning after 12 years. Basic + DA = ₹90,000/month. Unused leaves = 150 days. Working days = 26.
- Per Day Salary: ₹90,000 ÷ 26 = ₹3,462
- Gross Encashment (Limit A): ₹3,462 × 150 = ₹5,19,231
- Limit B (10 months' salary): ₹90,000 × 10 = ₹9,00,000
- Limit C (30 days × 12 yrs × ₹3,462): 360 × ₹3,462 = ₹12,46,154
- Limit D (Statutory cap): ₹25,00,000
- Exemption = Lowest of A, B, C, D: Min(₹5,19,231 | ₹9,00,000 | ₹12,46,154 | ₹25,00,000) = ₹5,19,231
- Taxable Amount: ₹5,19,231 − ₹5,19,231 = ₹0 (entire amount is exempt!)
- Net In-Hand: ₹5,19,231
Example 3: Private Employee — High Leave Balance (Taxable Portion Applies)
Profile: Mr. Ravi, private sector, retiring after 20 years. Basic + DA = ₹1,50,000/month. Unused leaves = 480 days. Working days = 30.
- Per Day Salary: ₹1,50,000 ÷ 30 = ₹5,000
- Limit A (Actual received): ₹5,000 × 480 = ₹24,00,000
- Limit B (10 months' salary): ₹1,50,000 × 10 = ₹15,00,000
- Limit C (30d × 20yrs × ₹5,000): 600 × ₹5,000 = ₹30,00,000 (but capped at actual days available = 480, so ₹24,00,000)
- Limit D (Statutory cap): ₹25,00,000
- Exemption = Lowest: Min(₹24,00,000 | ₹15,00,000 | ₹24,00,000 | ₹25,00,000) = ₹15,00,000
- Taxable Amount: ₹24,00,000 − ₹15,00,000 = ₹9,00,000
- Tax at 30%: ₹9,00,000 × 30% = ₹2,70,000
- Net In-Hand: ₹24,00,000 − ₹2,70,000 = ₹21,30,000
Types of Leave & Which Can Be Encashed
Not all types of leave are eligible for encashment. Here's a comprehensive table covering common leave types in Indian organisations:
| Leave Type | Also Called | Encashable? | At Retirement | During Service | Notes |
|---|---|---|---|---|---|
| Earned Leave (EL) | Privilege Leave (PL) | ✅ Yes | ✅ Yes | ✅ If policy allows | Primary leave type eligible for encashment |
| Casual Leave (CL) | — | ❌ Usually No | ❌ No | ❌ No | Lapses at year-end in most organisations |
| Sick Leave (SL) | Medical Leave | ❌ Usually No | ⚠️ Some states allow | ❌ No | Some PSUs allow partial encashment at retirement |
| Compensatory Off | Comp-Off | ⚠️ Policy-Dependent | ⚠️ Company-specific | ⚠️ Some allow | Check company HR policy; often expires within 90 days |
| Maternity Leave (ML) | — | ❌ No | ❌ No | ❌ No | Statutory leave under Maternity Benefit Act 1961 |
| Paternity Leave | — | ❌ No | ❌ No | ❌ No | Not eligible for encashment |
| Half Pay Leave (HPL) | — | ⚠️ Govt. Specific | ⚠️ Some govt. rules | ❌ No | Central govt. rules allow limited HPL encashment |
💡 Key Rule: Always check your company's leave policy document or appointment letter. The HR manual governs which leave types are encashable and the maximum number of days per year that can be encashed.
Tax on Leave Encashment — Section 10(10AA) Explained
Section 10(10AA) of the Income Tax Act is the governing provision for tax exemption on leave encashment. The tax treatment varies significantly based on when the encashment is received and the employee's type:
| When Received | Government Employees | Private / Non-Govt. Employees | Legal Heirs (on Death) |
|---|---|---|---|
| During Service (Annual) | ❌ Fully Taxable | ❌ Fully Taxable | N/A |
| At Retirement | ✅ 100% Exempt — No Cap | ⚠️ Exempt up to ₹25L (4-limit formula) | N/A |
| At Resignation | ✅ 100% Exempt — No Cap | ⚠️ Exempt up to ₹25L (4-limit formula) | N/A |
| On Death of Employee | ✅ 100% Exempt | ✅ 100% Exempt | ✅ 100% Exempt |
⚠️ Important: Leave encashment received during service is fully taxable for ALL employees — there is NO exemption available under Section 10(10AA) for annual leave encashment. Section 89 relief may be available to reduce tax burden in such cases.
The 4-Limit Exemption Formula for Private Employees
For private/non-government employees receiving leave encashment at retirement or resignation, the exemption under Section 10(10AA) is the lowest of the following four amounts:
Actual Amount Received
The total gross leave encashment actually paid by the employer for unused earned leave days. This is: Per Day Salary × Number of Leave Days Encashed.
10 Months' Average Salary
Average monthly salary (Basic + DA) of the last 10 months before retirement or resignation, multiplied by 10. This acts as a salary-based ceiling.
Statutory 30-Day Cap
Cash equivalent of earned leave, calculated as: 30 days × Completed Years of Service × Per Day Salary. The law caps recognised leave at 30 days per year, regardless of employer's actual leave policy.
₹25,00,000 Statutory Cap
The maximum lifetime tax exemption available under Section 10(10AA) for private employees. Raised from ₹3,00,000 to ₹25,00,000 effective April 1, 2023 (Budget 2023). This is an aggregate lifetime limit across all employers.
Taxable Amount = Actual Received (A) − Exemption
Government vs. Private Employee — Full Comparison
| Parameter | Government Employees | Private / Non-Govt. Employees |
|---|---|---|
| Tax Exemption at Retirement | 100% Exempt — Unlimited | Exempt up to ₹25,00,000 |
| Tax Exemption at Resignation | 100% Exempt — Unlimited | Exempt up to ₹25,00,000 (4-limit formula) |
| During-Service Encashment | Fully Taxable | Fully Taxable |
| Leave Accumulation Cap | As per service rules (typically 300 days max) | As per company leave policy |
| Days Divisor | 30 days (standard) | 26 or 30 days (per company policy) |
| DA Inclusion | Yes — DA included in formula | Yes — if DA is part of CTC structure |
| Governing Rules | CCS (Leave) Rules / State Service Rules | Company HR Policy + Section 10(10AA) ITA |
| Leave on Death | 100% Exempt for legal heirs | 100% Exempt for legal heirs |
| 4-Component Formula | Not Applicable (Full Exemption) | Applies — Exemption = Lowest of A, B, C, D |
Leave Encashment & Tax Regime — Old vs. New (2026)
A common confusion among employees is whether the Section 10(10AA) exemption is available under the New Tax Regime. Here's the clear picture:
| Provision | Old Tax Regime | New Tax Regime (115BAC) |
|---|---|---|
| Section 10(10AA) Exemption (At Retirement/Resignation) |
✅ Available | ✅ Available |
| Govt. Employee — Full Exemption | ✅ Yes | ✅ Yes |
| Private Employee — ₹25L Cap | ✅ Yes | ✅ Yes |
| Section 89 Relief (During-service encashment) |
✅ Available — File Form 10E | ⚠️ Limited benefit in new regime |
| Form 10E Requirement | File BEFORE ITR to claim Sec.89 relief | File BEFORE ITR to claim Sec.89 relief |
Key Takeaway: The Section 10(10AA) exemption works in BOTH tax regimes. You do NOT lose the leave encashment tax benefit by opting for the New Tax Regime. This makes it one of the few exemptions available across both regimes.
Leave Encashment in Full & Final (F&F) Settlement
When you resign or retire, leave encashment is processed as part of your Full & Final (F&F) Settlement — the final payment made by your employer covering all dues. Here's how it fits in:
Components of F&F Settlement
- Pending Salary: Salary for days worked in the last month
- Leave Encashment: Payment for all unused earned/privilege leave days
- Gratuity: If employee has 5+ years of service under the Payment of Gratuity Act
- Notice Period Pay/Recovery: Paid out or deducted based on notice served
- Bonus/Incentive: Any pending variable pay (pro-rated if applicable)
- Reimbursements: Pending expense claims
- PF & Gratuity: Provident Fund balance and gratuity payment
Timeline & Important Checks
- F&F is typically processed within 30-45 days after the last working day
- Under the Shops & Establishments Act, F&F must be paid within 2 working days (state-specific)
- Always verify leave balance with HR before your last day — request a leave account statement
- Ensure your leave ledger is updated and all approved leaves are reflected correctly
- Check if your company has a leave carry-forward cap — excess leaves may lapse if not encashed earlier
- Request a breakdown of leave encashment in your F&F statement — verify the divisor used (26 or 30 days)
Exemption Limit History — Section 10(10AA)
The maximum tax-exempt ceiling for leave encashment for private employees has been revised over the years. Here's the timeline:
Benefits of Using a Leave Encashment Calculator
Instant Accurate Results
Get precise payout figures using the exact formula banks and employers use — no manual calculation errors.
Section 10(10AA) Clarity
Instantly see your exempt and taxable portions under the 4-component formula — know your tax liability before your last day.
Govt. vs. Private Rules
Switch between employee types to understand the difference in tax treatment — especially useful for those transitioning sectors.
Retirement Planning
Project your leave encashment corpus at retirement by testing different leave accumulation and salary scenarios.
F&F Verification
Cross-check your employer's F&F statement leave encashment calculation to ensure you're being paid correctly.
Download & Share
Export your complete leave encashment breakdown as a report — useful for HR discussions, ITR filing, or financial planning.
Factors That Affect Your Leave Encashment Amount
- Basic Salary + DA: The two components that directly determine per-day salary. Higher Basic + DA = higher encashment. HRA, incentives, and special allowances are excluded.
- Number of Unused Earned Leave Days: More accumulated unused leaves = higher encashment. Check your leave balance regularly and plan strategically if approaching retirement.
- Working Days Divisor (26 vs 30): Using 26 days gives ~15% higher per-day salary than 30 days. Confirm which divisor your employer uses.
- Employee Type (Govt. vs Private): Government employees are fully exempt; private employees are exempt only up to ₹25L via the 4-limit formula.
- Years of Completed Service: Impacts Limit C (30 days × years × per-day salary) in the private employee exemption formula.
- Calculation Mode (Service/Resignation/Retirement/Death): During-service encashment is fully taxable; at retirement/resignation, exemptions apply; death — fully exempt for legal heirs.
- Company Leave Policy: Maximum encashable days, leave carry-forward limit, and which types of leave are eligible — all governed by your HR policy.
- Lifetime Exemption Already Claimed: If you claimed Section 10(10AA) exemption with a previous employer, the remaining lifetime limit (₹25L minus amount already claimed) applies at the new employer.
How to Report Leave Encashment in Your ITR (AY 2026-27)
For Leave Encashment at Retirement / Resignation
- Exempt Amount: Report under Schedule EI (Exempt Income) in your ITR — select "Any other income exempt under Section 10"
- Taxable Amount: Included in Gross Salary under "Income from Salary" — this is reflected in your Form 16 Part B by your employer
- ITR Form: Use ITR-1 (for total income up to ₹50L) or ITR-2 (if income exceeds ₹50L or has capital gains)
For Leave Encashment During Service
- Included in gross salary income — employer deducts TDS and reflects it in Form 16
- If the lump sum receipt creates a higher tax burden, claim Section 89 Relief
- To claim Section 89 relief: file Form 10E on the income tax portal (incometax.gov.in) BEFORE submitting your ITR — failure to file Form 10E before ITR will result in demand notice
Documents to Keep Handy
- Form 16 Part B from employer (shows leave encashment breakup)
- Employer's leave encashment certificate (showing exempt/taxable split)
- Leave account statement or ledger
- Acknowledgement of Form 10E (if claiming Section 89)
- F&F settlement statement from HR