Leave Encashment | Meaning and Definition

What is Leave Encashment?

The amount of money that is received by an employee in return for unused paid leaves in a year is known as leave encashment. According to labor law, every salaried employee is entitled to a certain amount of paid vacation days from their employer. The amount of paid time off is decided by the employer. Many companies also allow employees to carry forward paid leaves if they are not used in a single year, resulting in an unutilized leave balance in their leave quota at the time of departure or retirement. At the time of off-boarding, the company is required to reimburse the employee for unutilized paid leave; this payment is known as Leave Encashment. 

Benefits Of Leave Encashment

  •   If the employee is in service, the proceeds obtained for leave encashment are charged.
  •   If you leave a job owing to dismissal or resignation, the sum collected on account of leave encashment is totally payable in your hands, whether you work in the private or public sector.
  •  Under income tax laws, the value or amount earned toward leave encashment is treated as payroll income and taxed under a slab.
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