India Leave Encashment 2026: The Formula and the ₹25 Lakh Exemption
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Unused paid leave in India is not lost — it can be encashed, converted to a cash payout, and the calculation follows one widely-used formula.
The formula
(Basic salary + Dearness Allowance) ÷ 30 × unused earned-leave days. Some employers use a divisor of 26 instead of 30 — check your company policy or payslip.
Why we do not compute your entitlement for you
Unlike India's gratuity (a single central Act), how many leave days you earn per year is not uniform nationally — factory workers under the Factories Act 1948 earn roughly 1 day per 20 days worked, while other sectors follow their state's Shops & Establishments Act, which varies. Rather than guess, this calculator encashes the balance you already know from your payslip or HR record — the formula itself is consistent nationwide.
The tax angle
For non-government employees, leave encashment received on retirement or resignation is tax-exempt up to ₹25,00,000 (a lifetime aggregate across all employers) under Section 10(10AA). Government employees get it fully tax-free.
Worked example
Basic + DA = ₹40,000, 20 unused leave days: (40,000 ÷ 30) × 20 = ₹26,667.
Frequently asked questions
What is the formula for leave encashment in India?
(Basic salary + Dearness Allowance) ÷ 30 × the number of unused earned-leave days — though some companies use a divisor of 26 instead, so check your payslip or HR policy.
Is leave encashment taxable in India?
At retirement/resignation for non-government employees, it is exempt up to ₹25,00,000 (a lifetime aggregate limit across employers) under Section 10(10AA); for government employees it is fully tax-free. Leave encashed while still employed is fully taxable.
How many earned-leave days do I accrue per year in India?
This varies by sector and state — factory workers under the Factories Act 1948 earn roughly 1 day per 20 days worked (after 240 days worked in a year); other sectors follow their state's Shops & Establishments Act, which differs across states. Check your payslip or HR policy for your actual balance.
Is this the same as gratuity?
No — see our India Gratuity Calculator for that separate, service-length-based benefit. Leave encashment pays out unused vacation days specifically.