Leave Encashment Calculator

Many companies let unused leave pile up and pay for it when you leave. Whether that payment is taxed is a separate question, and the answer depends on who you work for and how large the payment is. This calculator values the leave, applies the tests used for private-sector employees, and shows the exempt part, the taxable part and an estimate of the tax on it.

Valuing the leave

The page divides your average monthly pay by 30 to get the pay for one day and multiplies by the number of days you are encashing. That is the amount you receive. Enter the average of the last 10 months of basic pay plus dearness allowance, since that is the base the exemption rules use. Your employer’s own method may differ, and if the payslip shows a different amount, the exemption tests are still applied to the amount you actually receive.

The four tests

For an employee who is not in government service, the exempt amount is the least of four figures. The first is the amount received. The second is the cash value of the leave earned, which is 30 days for each year of service less the leave you took, applied to the days you are encashing. The third is 10 months of average pay. The fourth is the statutory limit, which the page sets at 25,00,000, raised from 3,00,000 from 1 April 2023. The result line says which test set the exemption.

A worked example

The default is average monthly pay of 70,000, 60 days encashed, 12 years of service and 150 days of leave taken. The daily value is 2,333.33, so the amount received is 1,40,000. The leave earned is 12 × 30 − 150 = 210 days, which is more than the 60 days, so the second test allows 1,40,000. The third test allows 7,00,000 and the fourth 25,00,000. The least is the amount received, so everything is exempt and the taxable part is zero. In the large sample, with pay of 2,00,000 a month, 400 days encashed, 25 years of service and 300 days taken, the amount received is 26,66,667. Ten months of pay is 20,00,000, which is the least, so 20,00,000 is exempt and 6,66,667 is taxable. At 30 percent plus cess that adds 2,08,000.

Government employees

For central and state government employees the whole amount received on retirement or leaving is exempt, so the toggle on the page shows the full amount as exempt and skips the tests. Employees of public-sector companies or of local bodies are not in this category for this rule, which is why the toggle says central or state government.

Edge cases

Leave taken larger than the leave earned makes the allowed days zero, and the entire payment becomes taxable up to the other tests, which the page shows as zero for the second test. Days encashed above the allowed number are still paid, but taxed. A tax rate of 0 prints a tax of 0. The page rejects a monthly pay of zero.

When the exemption applies

The note under the result explains that the exemption applies when you retire or leave a job. Leave encashed while you continue to work is taxed as salary in full, and the page does not apply the tests to it. The 25,00,000 limit is a limit over a working life, shared between employers, so if you received an exempt payment from an earlier employer, enter a lower limit.

Limits

The page does not handle the tax on the taxable part through your slab in detail; it multiplies by the single rate you enter. Terminal benefits can add up to a large income in one year, which can raise your slab, so treat the tax line as an estimate and look at the Income Tax Calculator for the whole year. Company policy on what can be encashed and when is outside the page.

Related tools

• Gratuity Calculator covers the other large payment made when you leave.
• Notice Period Calculator estimates the buyout if you leave before the notice ends.
• Income Tax Calculator shows what the taxable part does to your yearly tax.
• EPF Calculator projects the provident fund balance you also receive.