Leave Encashment Calculator

What is leave encashment?

When you leave a job (resignation, retirement, or contract end), your employer pays you a cash amount for your unused paid leave (PL/EL). The formula varies but is typically: (Basic + DA) ÷ 30 × number of unused leave days.

Tax treatment under Section 10(10AA)

• Govt employees at retirement: Fully tax-exempt. No cap.
• Non-govt at retirement / leaving: Exempt up to the LOWEST of:
  • Actual amount received
  • 10 months' average salary (Basic + DA)
  • Cash equivalent of leave at credit (max 30 days/year × years served)
  • ₹25 lakh lifetime cap (raised from ₹3 lakh in Budget 2023)
• During service (encashed mid-employment): Fully taxable as salary.

Worked example

You retire at age 60 with 60 days of unused PL. Your last basic + DA was ₹80,000/month and you served 30 years. Gross encashment = ₹80K ÷ 30 × 60 = ₹1,60,000.

The 4 caps work out as: actual ₹1.6L; 10-month avg ₹8L; leave credit (30 × 30 / 30) × ₹80K = ₹24L; lifetime ₹25L. Lowest = ₹1.6L — fully tax-exempt.

The Budget 2023 lifetime cap explained

Until 2023, the non-govt cap was just ₹3 lakh — frozen since 2002 despite inflation. Budget 2023 raised it to ₹25 lakh, indexed to senior bureaucrat salary scales. This is a lifetime cumulative cap across all jobs, not per-job. So if you got ₹15L tax-exempt from Job 1, you have only ₹10L room left at retirement.

Tips to maximize tax exemption

• Time your resignation right before financial year end — encashment is taxed in the year received.
• If under the lifetime cap, leave encashment is one of the few large tax-free retirement payouts (along with gratuity, PF, NPS lump sum).
• Keep records of any past encashments — your new employer will ask you to declare in Form 12BB.
• Govt and PSU employees: confirm you qualify as "govt" under Section 10(10AA)(i) — the definition is strict.

Related: gratuity calculator, income tax calculator, notice period buyout calculator.