Leave Encashment Calculator
Rather than letting unused earned leave quietly expire, most companies let employees convert it into cash — either as part of an annual policy, or when they exit through resignation or retirement. This calculator estimates that payout in seconds, no spreadsheet needed.
What is Leave Encashment?
Leave encashment means turning unused paid leave into money instead of taking the days off. It commonly comes into play at three points: when an employee resigns or is terminated, at retirement or superannuation, or — if company policy allows it — as an annual option to cash out a portion of accumulated leave without leaving the job. In the unfortunate event of an employee's death, any unused leave balance is typically encashed and paid to their legal heirs.
Which Leave Types Qualify?
Not all leave is encashable. In most Indian companies, only earned leave (also called privilege leave) counts toward encashment — casual leave and sick leave are usually excluded and simply lapse if unused, though this varies by company policy and, for government employees, by specific service rules.
Leave Encashment Formula
The most common formula is: Leave Encashment = (Last drawn Basic Salary + Dearness Allowance ÷ dividing factor) × number of leave days being encashed. The dividing factor represents how many days are counted per month — some companies use 30 (calendar days), others use 26 (working days only) — so always check which convention your employer follows before relying on the result.
Worked Example
Say an employee's monthly Basic + DA is ₹45,000, they're encashing 8 unused earned leave days, and their company uses a 30-day divisor. Leave Encashment = (45,000 ÷ 30) × 8 = ₹12,000. Swap in a 26-day divisor instead and the same inputs produce a slightly higher per-day rate — which is exactly why getting this number right for your own company matters.
Is There a Single Law Governing Leave Encashment?
Unlike gratuity, leave encashment in India isn't governed by one uniform statute for every employee. It's shaped by a mix of your employer's internal leave policy, whether you're a government or private-sector employee, and the specific leave type in question — so the exact rules can differ meaningfully from one organization to the next.
Frequently Asked Questions
Only if your company's policy explicitly allows it — some organizations let employees cash out a capped number of earned leave days annually, while others reserve encashment strictly for exit or retirement.
Generally no. Most policies restrict encashment to earned/privilege leave; sick and casual leave typically lapse at year-end instead.
It directly changes your per-day rate — the same leave balance can produce a noticeably different payout depending on which convention your employer uses, so it's worth confirming rather than assuming.
No — tax treatment depends on the circumstances. Encashment received at retirement or resignation typically carries partial exemption up to statutory limits for non-government employees, while encashment taken during active employment is usually fully taxable as regular salary income.