Leave Encashment
Also called: leave salary
What is Leave Encashment?
Leave encashment is payment for accumulated but unused leave, either during employment or at exit. The policy sets which leave types accumulate, how much may carry forward and how it is valued.
Why Leave Encashment matters
Accumulated leave is a liability that grows quietly. Long-serving staff can carry balances worth months of salary, which surfaces as a large payment at exit.
Leave Encashment formula
Encashment = Daily wage × Number of unused leave days
Daily wage is usually basic plus DA divided by the working days in the month.
How Leave Encashment works in practice
Cap accumulation, encourage leave to actually be taken, and provide for the outstanding balance in the accounts. Tax treatment differs between encashment during service and at retirement.
Frequently asked questions
During service it is generally taxable; at retirement, exemptions apply subject to limits and employee category.