Leave Encashment Calculator

What is the Leave Encashment Calculator?

The leave encashment calculator is an online tool that helps you calculate your exempted and taxable leave salary for Income tax purposes. It is used to calculate the amount of money he will be entitled for accrued but unused leave and its taxability. Employees can easily calculate their exempted and taxable salaries using the leave encashment calculator.

What is Leave Encashment?

Leave encashment refers to the money received by the employees at the time of resignation or retirement for unused leaves that they did not utilise during their employment. So, don’t worry if you have not utilised all the leaves available during your employment. You will benefit from not utilising your leaves by being given some extra money during your resignation or retirement. 

Types of Leaves Eligible for Encashment

An organisation allows its employees different types of leaves, but not all types of leaves are available to encash. The leaves that can be usually encashed are casual leaves, which can be used to take leave for any personal reasons; privilege leaves, which an employee earns depending upon the number of months or years worked; and sick leave, which is allowed when you fall sick or due to any medical emergencies. Different types of leaves have different rules about encashing them. The rules of encashment vary for different organisations.

Leave Encashment Exemption Under Section 10(10AA)

The taxability and exemption of the Leave encashment can be understood by the following flow chart:

Note - Earned leave encashment cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired.

Leave Encashment Calculation

Let’s understand leave encashment calculation by using an example.

Mr Rahul is retiring after 20 years of service. He was entitled to 20 days of paid leave per annum, which means he had 400 paid leaves during his entire period of service. Out of this, he has utilised 80 days of leave. He is left with 320 days of unutilised leave. At the time of retirement, he earns a basic salary plus dearness allowance of Rs.30,000 per month. You are required to calculate his taxable leave salary assuming:

1. He is a government employee. 
2. He is a non-government employee.

1.  He is a government employee -  

   The leave salary received at the time of retirement is Rs.3,20,000 (30,000/30*320). This is fully exempt u/s 10(10AA)(i) because Mr.Rahul is a government employee. Thus, the taxable leave compensation is nil.

2.  He is a non-government employee - 

Since Mr. Rahul is a non-government employee, leave encashment is only partially exempt u/s 10(10AA)(ii).

How to Use Leave Encashment Calculator?

Step 1: Select the Employee Type as Government or Non-Government, whichever is applicable to you.

Step 2: Select if you have encashed “During  Service” or “At Retirement”

Step 3: Enter the number of years of service and do not include any fractions in months.

Step 4: Enter your average salary (Basic + DA if included in the retirement benefits) of the last 10 months.

Step 5: Enter the no.of unused leaves available for leave encashment

Step 6: Enter the total leaves available during the service period per year 

Step 7: Once you enter all the details, it will calculate the amount of exemption and taxable leave salary.