What is a Leave Encashment Calculator?
A leave encashment calculator is an online tool that helps you find out how much money you will receive for your unused leaves. If you are planning to resign, retire, or are simply curious about the value of your saved leaves, this tool makes things easy for you.
Instead of manually doing complex math or worrying about tax rules, the calculator instantly shows you the exempted and taxable portion of your leave salary. Zimyo’s calculator is designed to give you quick, accurate, and compliant results as per leave encashment calculation in India.
What is Leave Encashment?
Leave encashment is the payment an employee receives for earned or privilege leave they did not use, converted to cash at resignation, retirement, or, where policy allows, during service. The amount is based on basic salary plus dearness allowance, not full CTC. In case of death, the encashment is paid to the nominee or legal heir.
Zimyo Payroll software handles leave encashment, gratuity, FnF, and TDS in one settlement flow.
Which Leaves Can Be Encashed?
Leave type | Encashable? |
Earned / privilege leave (EL/PL) | Yes, the standard encashable leave across organizations |
Casual leave (CL) | Rarely; usually lapses at year-end unless policy states otherwise |
Sick leave (SL) | Only if company policy explicitly permits it |
Maternity, paternity, bereavement, floater leave | No, these cannot be accrued or encashed |
Encashment of earned leave is the default across Indian organizations; everything else is policy-dependent. Check your leave policy before counting other leave types in the calculator.
Leave Encashment Rules in India (2026)
- Accrual: under Section 79 of the Factories Act, 1948, workers earn 1 day of earned leave for every 20 days worked. State Shops & Establishments Acts set their own accrual and carry-forward rules.
- Carry-forward caps: the Factories Act allows carrying forward up to 30 days; state S&E Acts vary (for example, Karnataka permits 45 days, Maharashtra 42). Leave above the cap typically lapses or must be encashed.
- Central government cap: central government employees can encash a maximum of 300 days of earned leave at retirement.
- Company policy governs the rest: unlike gratuity, leave encashment has no single uniform statute for all private employees - eligibility, timing, and caps come from your HR policy.
- Exit settlement: at resignation or retirement, leave encashment is paid as part of the full and final settlement; under the Code on Wages, wage dues must reach the employee within two working days of the last working day.
Leave Encashment Formula
The standard leave encashment calculation used by most Indian companies:
Leave Encashment = (Basic Salary + Dearness Allowance) ÷ 30 × Number of unused leave days
- Only Basic + DA count. HRA, bonus, incentives, and other allowances are excluded.
- The divisor can be 30 or 26. 30 (calendar days) is the common convention; some companies use 26 (working days), which yields a higher per-day rate. Your leave policy must state which one applies, and apply it uniformly to every employee. Inconsistent divisors across exits are a common audit red flag.
Example 1 — Earned Leave Calculation (During Service)
Basic + DA of ₹30,000/month, 20 days of unused earned leave:
Encashment = (30,000 ÷ 30) × 20 = ₹20,000
Received during service, this amount is fully taxable as salary - no exemption applies (see tax section).
Leave Encashment on Retirement: How the Tax Exemption Works
At retirement or resignation, leave encashment for non-government employees is exempt under Section 10(10AA) up to the least of four amounts:
- Actual leave encashment received
- ₹25,00,000 (the lifetime cap, raised from ₹3 lakh by CBDT with effect from AY 2024-25)
- 10 months’ average salary (Basic + DA, averaged over the last 10 months before exit)
- Cash equivalent of unavailed leave, counting leave entitlement at a maximum of 30 days per completed year of service
Example 2 — Leave Encashment on Retirement (Full Exemption Working)
Meera retires after 20 years. Average Basic + DA over her last 10 months: ₹60,000/month. Her company grants 30 days of earned leave per year; she used 250 days over her career, leaving 350 unused.
Step | Calculation | Amount |
Encashment received | (60,000 ÷ 30) × 350 | ₹7,00,000 |
Limit (a): actual received | — | ₹7,00,000 |
Limit (b): statutory cap | — | ₹25,00,000 |
Limit (c): 10 months’ average salary | 60,000 × 10 | ₹6,00,000 |
Limit (d): cash equivalent of unavailed leave | (20 yrs × 30 days − 250 used) = 350 days → (60,000 ÷ 30) × 350 | ₹7,00,000 |
Exempt (least of the four) | — | ₹6,00,000 |
Taxable leave salary | 7,00,000 − 6,00,000 | ₹1,00,000 |
Zimyo’s calculator runs this exact calculation for you and shows the exempt and taxable split, the part that most manual calculations get wrong.
Is Leave Encashment Taxable? (2026)
Scenario | Tax treatment |
Government employee - at retirement | Fully exempt under Section 10(10AA)(i) |
Non-government employee - at retirement or resignation | Exempt up to the least-of-four limit above; balance taxed as salary with TDS in the final settlement |
Any employee - during service | Fully taxable as salary income; no Section 10(10AA) exemption |
Paid to nominee/legal heir on death of employee | Not taxable in the hands of the nominee or legal heirs |
The exemption at exit applies identically under both the old and new tax regimes; regime choice affects only the tax rate on the taxable balance, not the exempt amount. The ₹25 lakh cap is a lifetime aggregate across employers.
How to Use Zimyo’s Leave Encashment Calculator
You can calculate your leave encashment using Zimyo’s Leave Encashment Calculator by following these steps:
- Select your employee type - government or non-government.
- Choose when the encashment happens - during service, or at retirement/resignation.
- Enter your completed years of service.
- Enter your average Basic + DA for the last 10 months.
- Enter unused leave days and your annual leave entitlement.
- Get the full result - encashment amount, exempt portion, and taxable leave salary.
Who Should Use Leave Encashment Calculator?
- Employees planning resignation or retirement
- HR teams managing full and final settlements
- Payroll managers ensuring accurate payouts
- Financial planners helping with retirement planning
Conclusion
Leave encashment is more than just an HR process. It is money you have earned by saving your leaves. With Zimyo’s leave encashment calculator, you can quickly understand the value of your unused leaves, plan your finances better, and stay confident about tax compliance.
Whether you are an employee planning your next move or an HR professional handling settlements, this tool gives you clarity when you need it most.
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