Leave Encashment Calculator
What your unused earned leave is worth when you resign or retire, and how much of that payout escapes tax.
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Adjust the inputs on the left to see your leave encashment payout.
Unused earned leave is money. When you resign or retire, most Indian employers pay out the balance — and the arithmetic is simpler than gratuity, with one important difference.
The formula
Payout = (last drawn basic + DA ÷ 30) × unused leave days
Note the 30, not the 26 used for gratuity. Leave encashment is conventionally computed on a calendar-month basis. Assuming the two use the same divisor overstates a leave payout by about 15%, which is a common and disappointing surprise.
Worked example. Basic plus DA of ₹60,000 a month with 45 unused leave days:
(₹60,000 ÷ 30) × 45 = ₹2,000 × 45 = ₹90,000
What counts as encashable leave
Only earned leave or privilege leave is normally encashable. Casual leave and sick leave usually lapse at the end of the year and are not paid out.
Most employers also cap accumulation — commonly at 30, 45 or 60 days — and anything above the cap simply disappears each year rather than accruing. If you have been carrying a large balance for years on the assumption it is banked, check the policy; the cap is often lower than people believe.
Tax treatment
On retirement or resignation from a non-government employer, leave encashment is exempt up to a ceiling that was raised substantially in 2023, to ₹25,00,000. Above that it is taxable as salary.
The exemption is computed as the least of several figures — the actual amount received, ten months of average salary, the statutory ceiling, and the cash equivalent of unavailed leave capped at 30 days per completed year of service. The last one catches people out: even with a 60-day balance, the exempt calculation may only recognise 30 days per year served.
Government employees receive leave encashment on retirement fully exempt.
While still employed, leave encashment is fully taxable as salary. There is no exemption for encashing leave mid-career, only on exit. This is worth knowing before you choose to encash rather than take a break.
Before you resign
Three things are worth checking in the same week:
- Your actual encashable balance, not your total leave balance. HR can confirm which categories are payable.
- Whether the payout uses basic+DA or gross. Most use basic+DA, which is considerably less.
- How it interacts with your notice period. Some employers let you offset unserved notice against leave balance rather than paying a buyout in cash — often the cheaper route. The notice period buyout calculator shows what the alternative would cost.
Leave Encashment — frequently asked questions
How is leave encashment calculated?
Payout = (last drawn basic + DA ÷ 30) × unused leave days. On ₹60,000 basic+DA with 45 days of unused leave, that is ₹2,000 per day × 45 = ₹90,000. Note the divisor is 30, not the 26 used for gratuity — assuming they are the same overstates a leave payout by roughly 15%.
Is leave encashment taxable?
On resignation or retirement from a non-government employer it is exempt up to ₹25,00,000, with the exempt amount being the least of several figures including ten months of average salary and 30 days of leave per completed year of service. Government employees are fully exempt on retirement. Encashing leave while still employed is fully taxable with no exemption at all.
Which types of leave can be encashed?
Normally only earned leave or privilege leave. Casual leave and sick leave typically lapse annually and are not paid out. Most employers also cap how much earned leave can accumulate — often at 30, 45 or 60 days — and anything beyond the cap is lost each year rather than banked, so a long-held balance may be smaller than you think.
Is leave encashment calculated on basic or gross salary?
Almost always on basic plus dearness allowance, not gross. On a ₹1,50,000 gross with ₹60,000 basic, a 45-day payout is ₹90,000 rather than ₹2,25,000. Check your policy document, because a minority of employers do use gross and the difference is large.
Can I use leave balance instead of paying a notice buyout?
Many employers allow it — you adjust unserved notice days against your leave balance rather than paying cash. It is usually cheaper than a buyout, because the buyout may be computed on gross while encashment is on basic. Ask HR explicitly; it is often permitted but rarely offered unprompted.
Do I get leave encashment if I am terminated?
Earned leave already accrued is generally payable regardless of how employment ends, since it represents work already done. The tax exemption on resignation or retirement applies in the same way. Terms can vary with your contract and the reason for termination, so the appointment letter and any settlement agreement are what govern.
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Results from this calculator are estimates for informational use only — not financial, medical, or professional advice. Read our full disclaimer before acting on any number you see here.