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Leave Encashment Calculator
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Leave Encashment Formula
Leave Encashment = (Basic Salary + DA) ÷ 30 × Unused Leave Days
The daily salary is calculated by dividing the monthly Basic + DA by 30 calendar days. This daily rate is then multiplied by the number of unused leave days to arrive at the encashment amount.
Tax Rules for Leave Encashment
- On retirement: exempt up to ₹25 lakhs for non-government employees
- Government employees: fully tax-exempt
- During service: fully taxable as salary income
- On resignation: exempt subject to Section 10(10AA) limits
- Maximum 30 days per year of service is considered for exemption
- Only earned/privilege leave is eligible, not casual or sick leave
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FAQ
Frequently Asked Questions
What is leave encashment?
Leave encashment is the monetary compensation an employee receives for unused leave balance. It can be paid during service (for accumulated leave), at the time of resignation, or upon retirement.
How is leave encashment calculated?
Leave encashment is calculated as: (Basic Salary + Dearness Allowance) divided by 30, multiplied by the number of unused leave days. Only earned/privilege leave is typically eligible for encashment.
Is leave encashment taxable?
Leave encashment received during service is fully taxable. On retirement or resignation, it is exempt up to ₹25 lakhs for non-government employees (as per Budget 2023). For government employees, it is fully exempt.
What types of leave can be encashed?
What is the maximum leave encashment exemption?
Can I encash leave while still employed?
Have more questions? Check our knowledge base or contact us.
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