Leave Encashment Calculator

📘 Leave Encashment for Central Government Employees: A Complete Guide

For Central Government employees in India, leave encashment is an important financial benefit that provides a lump-sum payment for unused earned leave (EL). Many employees are not fully aware of how leave encashment is calculated, what the eligibility rules are, and what limits apply. This article provides a comprehensive explanation of leave encashment, including the formula, rules, examples, taxation aspects, and practical tips.

1. What is Leave Encashment?

Leave encashment is a provision that allows employees to receive monetary compensation in exchange for the earned leave (EL) they have accumulated but not availed.

• At the time of retirement (superannuation or voluntary retirement)
• At the time of resignation (if eligible)
• At the time of death (to be given to family/nominee)
• During service, under schemes like encashment of 10 days EL with LTC

Thus, leave encashment acts both as a retirement benefit and a mid-service financial benefit.

2. Earned Leave (EL) in Central Government Service

Earned leave is credited at a prescribed rate (generally 30 days per year of service). The maximum accumulation allowed is 300 days. Any EL beyond this lapses automatically. Only up to 300 days can be encashed.

3. Formula for Leave Encashment

Leave Encashment = (Basic Salary + Dearness Allowance) / 30 × Number of Earned Leave Days (max 300)

• Basic Salary – only basic pay
• DA – included at the time of calculation
• Divisor – 30 days/month fixed
• EL days – max 300 days

4. Example Calculation

Basic Pay: ₹70,000
DA (50%): ₹35,000
Total: ₹1,05,000
Leave Balance: 280 days

Leave Encashment = (1,05,000 ÷ 30) × 280 = ₹9,80,000

If 320 days, only 300 considered = ₹10,50,000

5. Leave Encashment during LTC

Employees can encash 10 days EL while availing LTC, up to 60 days during service. This is in addition to 300 days at retirement.

6. Rules at Retirement

• Max 300 days encashment
• Calculated on last Basic + DA
• Revised if pay scales change retrospectively
• Paid lump-sum, not pension

7. Taxation

Government Employees: Fully exempt under Section 10(10AA)(i).
Non-Govt Employees: Exempt up to ₹25 lakh (w.e.f. April 2023), subject to conditions.

8. Importance

• Retirement Security – additional lump sum
• Encourages saving leave
• Financial flexibility post-retirement
• Tax-free for Govt employees

9. FAQs

Q1: Max days encashable? – 300 days
Q2: Does HPL count? – No
Q3: During service? – Yes, via LTC (10 days, max 60)
Q4: Taxable? – Govt: No, Pvt: Partial exemption
Q5: On resignation? – Depends, usually taxable

10. Practical Tips

• Preserve earned leave
• Use LTC encashment wisely
• Check leave balances regularly
• Plan retirement corpus with gratuity + pension
• Be aware of tax rules