Standard method: per-day pay = (monthly Basic + DA) ÷ 30, then × leave days. Employers may instead divide by 26 or use different components — check your policy. Tax exemption on non-government leave encashment at retirement is capped (currently ₹25 lakh).
Leave encashment is the cash you receive for earned (privilege) leave you did not take — paid out when you resign, retire or as an annual settlement. The most common formula values each leave day at your daily rate of Basic plus Dearness Allowance, taking a month as 30 days.
How leave encashment is calculated
Leave encashment = (monthly Basic + DA) ÷ 30 × number of leave days
Monthly Basic+DA ₹30,000
Encashment
30 days
₹30,000
60 days
₹60,000
120 days
₹1,20,000
240 days
₹2,40,000
Worked example
Monthly Basic + DA of ₹45,000 with 90 days of accumulated leave: per-day pay is 45,000 ÷ 30 = ₹1,500, so encashment is 1,500 × 90 = ₹1,35,000.
Tax on leave encashment
For government employees, leave encashment at retirement is fully tax-free. For other employees it is exempt up to a limit — raised to ₹25 lakh — with the balance taxable as salary. Encashment while still in service is generally taxable. Rules can change, so confirm the current position when you file.
Frequently asked questions
How is leave encashment calculated?
Divide your monthly Basic + DA by 30 to get a daily rate, then multiply by the number of leave days encashed.
Is leave encashment taxable?
Government retirees: fully exempt. Others: exempt up to ₹25 lakh at retirement, balance taxable. In-service encashment is taxable.
Is it divided by 30 or 26?
Most calculations use 30; some employers use 26 working days. Check your company's leave policy.
Which pay components count?
Usually Basic pay plus Dearness Allowance. Allowances like HRA are typically excluded.
Estimates for general guidance, not financial or tax advice. Employer formulas and tax limits vary and can change; confirm your policy and current rules.
Written by the CalcPine team · Reviewed for accuracy · Last updated 16 July 2026 · Method: (monthly Basic + DA) ÷ 30 × leave days.
