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Estimate leave encashment from basic salary and encashment days.
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Accumulated leave days represent real monetary value. When an employee resigns, retires, or reaches the end of a leave accrual year, those unused days must be converted to a cash payout — a process called leave encashment. Getting the calculation right protects both the employee's entitlement and the company's payroll compliance.
Leave encashment (also called leave encashment or leave pay-out) is the payment an employee receives in lieu of unused leave days they are entitled to. Rather than taking the leave as time off, the days are converted to cash at the employee's current daily salary rate.
Most jurisdictions and company policies define which types of leave are encashable. Typically, annual leave (earned leave) is encashable; sick leave often is not.
Leave Encashment = (Monthly Salary ÷ Working Days per Month) × Unused Leave Days
Example: ($4,500 ÷ 22) × 12 days = $204.55 × 12 = $2,454.55
Some jurisdictions or company policies use a daily rate based on calendar days:
Daily Rate (Calendar) = Monthly Salary ÷ 30 (or actual days in month)
Example: $4,500 ÷ 30 = $150/day × 12 days = $1,800.00
| Situation | Tax Treatment | Notes |
|---|---|---|
| Encashment during service | Fully taxable | Added to salary income for the year |
| Encashment on retirement (private sector) | Partially exempt | Exemption up to statutory limit (varies by country) |
| Encashment on retirement (government) | Fully exempt | In many countries (e.g., India), fully exempt for central govt employees |
| Encashment on resignation / termination | Fully taxable | No exemption typically available |
Enter your monthly salary and unused leave days above for an instant encashment value.
This depends entirely on your company policy and applicable labor law. Most policies cap total encashable leave at 30–60 days over a career. Some countries (e.g., India) cap the tax-exempt portion at 10 months' average salary. Check your HR policy and local statutory guidelines for the precise cap applicable to your situation.
In most jurisdictions, sick leave is not encashable — it lapses if unused. Only earned leave (annual leave, privilege leave) is typically eligible for encashment. Some companies offer partial sick leave encashment as an employee benefit, but this is not a statutory requirement in most countries.
The salary at the time of encashment is the standard basis. This includes basic salary and, in some jurisdictions, dearness allowance (DA). Other allowances (HRA, travel allowance) are excluded in many statutory formulas. Always verify the specific components included under your jurisdiction's labor law.
If you've worked for only part of the year, your leave accrual for the period is prorated. For example, if you accrue 18 days per year and resign after 8 months, your accrued entitlement is (18 ÷ 12) × 8 = 12 days. Subtract any leave already taken to get the encashable balance. Enter the final balance directly into the calculator above.
Disclaimer: This calculator is for informational purposes only and does not constitute legal or financial advice. We do not guarantee the accuracy or completeness of the results. Please consult a qualified professional for advice specific to your situation.