Is leave encashment taxable when I resign?

It is exempt up to the ₹25 lakh lifetime limit for a non-government employee, and taxable beyond it. Most people never approach that limit, so in practice a resignation payout is usually tax free.

Can my employer refuse to encash my leave?

They can apply their own policy on how many days carry forward and how many can be encashed, and those caps are enforceable. What they cannot do is quietly wipe an accrued balance you were entitled to under the policy in force when you earned it.

Leave encashment calculator

Unused earned leave is usually paid out when you resign or retire. The rate is your basic pay divided across the month, applied to whatever balance your employer says you have.

The tax treatment splits sharply on why you are leaving. Retirement gets a large exemption. Resignation, in most private-sector readings, gets the same exemption. Encashing leave while still employed gets none at all.

Leave encashment

₹60,000

₹60,000 of it is exempt from tax

Daily rate: ₹2,000
Days encashed: 30
Gross encashment: ₹60,000
Exempt portion: ₹60,000
Taxable portion: ₹0
Share you keep at a 30% slab: 100.0%

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How this is worked out

The daily rate is monthly basic plus dearness allowance divided by thirty.
The payout is that rate multiplied by the number of days encashed.
For a non-government employee leaving a job, Section 10(10AA) exempts up to ₹25 lakh across a lifetime.
Encashment while still in service is fully taxable as salary.

What this does not cover

Employers cap how many days can be carried forward and encashed. Your balance on paper is often larger than the encashable balance.
Casual leave and sick leave are usually not encashable. Only earned or privilege leave is.
Government employees have leave encashment on retirement fully exempt, with no cap.

Questions people ask

Is leave encashment taxable when I resign?: It is exempt up to the ₹25 lakh lifetime limit for a non-government employee, and taxable beyond it. Most people never approach that limit, so in practice a resignation payout is usually tax free.
Can my employer refuse to encash my leave?: They can apply their own policy on how many days carry forward and how many can be encashed, and those caps are enforceable. What they cannot do is quietly wipe an accrued balance you were entitled to under the policy in force when you earned it.

Where these figures come from

Rates and rules on this page were last checked against the source on 31 August 2026. Tax law changes; check the source before you rely on a number for a decision.

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