India Leave Encashment Calculator

Leave encashment is the cash your employer pays for earned leave (privilege leave) you didn't take. Many employers let you cash out some leave each year, and pay for the rest when you retire or resign. How much is tax-free depends on who you work for and when you are paid.

The formula

leave encashment = leave days × monthly (basic + DA) ÷ 30
(÷ 26 if your employer counts working days)

tax-free, non-government, on retiring or resigning = smallest of:
(a) ₹25 lakh minus tax-free encashment claimed before
(b) 10 × average monthly salary of the last 10 months
(c) unused leave days × average salary ÷ 30, with leave counted at no more than 30 days for each completed year
(d) the amount actually received

government staff on retiring: all tax-free
cashed out while still working: all taxable
taxable = amount received − tax-free

Worked example

A company employee resigns after 8 completed years. Last basic + DA is ₹75,000 a month, the average of the last 10 months is the same, they earn 30 days' leave a year and are paid for 280 unused days.

• A day's pay: ₹75,000 ÷ 30 = ₹2,500
• Leave encashment: 280 × ₹2,500 = ₹7,00,000
• (a) Limit: ₹25,00,000
• (b) 10 months' average salary: 10 × ₹75,000 = ₹7,50,000
• (c) Leave counted: 30 days × 8 years = 240 days, less than the 280 paid, so 240 × ₹2,500 = ₹6,00,000
• (d) Amount received: ₹7,00,000
• Tax-free = smallest = ₹6,00,000 (limit c). Taxable = ₹7,00,000 − ₹6,00,000 = ₹1,00,000
• Tax at the 30% slab: ₹1,00,000 × 30% = ₹30,000, plus 4% cess = ₹31,200

If the employer divided by 26 instead, the payment would be 280 × ₹75,000 ÷ 26 = ₹8,07,692. The tax-free part stays ₹6,00,000, because the tax limits always use ÷ 30, so ₹2,07,692 would be taxable.

Who gets what tax-free

The ₹25 lakh limit

The limit under section 10(10AA)(ii) was ₹3 lakh from 1998. The CBDT raised it to ₹25,00,000 for employees "who retire, whether on superannuation or otherwise", with effect from 1 April 2023 (Notification 31/2023, S.O. 2276(E), dated 24 May 2023). "Or otherwise" is why resignation counts too. It is a lifetime limit across all your employers, so any tax-free leave encashment you got before uses some of it up check.

Checked on 17 Oct 2026: the ₹25 lakh figure and its 1 April 2023 start, on the Income Tax Department's page for Notification 31/2023 (PDF). The other rules (government staff, 10 months, 30 days a year, earlier claims, in-service and death) are from section 10(10AA) and were not re-checked on that page, so they are marked "check". The Income-tax Act 2025 replaces the 1961 Act from 1 April 2026 and is understood to keep this exemption check.

Good to know

• Salary for the limits means basic pay, DA where your terms count it for retirement benefits, and commission paid as a fixed % of sales. HRA, special allowance and bonus are left out.
• 30 days a year: if your employer gives 45 days a year, only 30 a year count for limit (c). Leave you took or cashed out while working comes off the count.
• Only completed years count for limit (c): 8 years 11 months is 8 years.
• Cashing out while working is added to your salary for that year. If it pushes you into a higher slab, relief under section 89 (Form 10E) may lower the tax check.
• The tax estimate here uses your highest slab plus 4% cess, with no surcharge. Your employer may deduct TDS on the taxable part.
• A leave encashment paid by a second employer after retirement from the first may need its own check against the limit.

This calculator gives an estimate, not tax or legal advice. Items marked "check" could change or are worth confirming with your employer or a tax adviser.