Calculate your leave encashment amount and tax implications
Leave encashment is the process of converting unused leave days into monetary compensation. Employees can opt to receive cash payment for their accumulated leave balance instead of taking time off.
Formula: (Basic Salary ÷ 30) × Leave Balance Days
Example: ₹50,000 salary with 15 days leave = (50,000 ÷ 30) × 15 = ₹25,000
Leave encashment during employment is fully taxable. Upon retirement/resignation: First ₹3 lakhs is tax-free under Section 10(10AA) of Income Tax Act.
Yes, leave encashment received during employment is fully taxable. However, upon retirement or resignation, the first ₹3 lakhs is tax-exempt under Section 10(10AA) of Income Tax Act.
Typically, companies allow encashment of up to 30 days of earned leave per year. However, this varies by company policy and employment contract.
Usually only earned/privilege leave can be encashed. Casual leave and sick leave generally cannot be encashed and lapse at year-end.
Financial year-end or before tax filing can be optimal. Also consider encashing before resignation/retirement for tax benefits.