What is leave encashment?
Leave encashment is the cash payment made in lieu of unutilised leave standing at your credit. For Central Government employees, this most commonly happens on retirement, but it also applies on death, resignation (subject to conditions), and — separately — as a smaller encashment allowed alongside LTC during service. This calculator estimates the lump-sum cash equivalent payable on retirement, governed by Rule 39 of the CCS (Leave) Rules, 1972.
How leave encashment is calculated
The leave counted is your Earned Leave (EL) at credit on the date of retirement, subject to a ceiling of 300 days. Only Basic Pay and Dearness Allowance are used in the calculation — HRA, Transport Allowance and other allowances are excluded.
The 300-day ceiling and Half Pay Leave (HPL)
An employee can accumulate a maximum of 300 days of Earned Leave in the leave account. If your EL balance on retirement is already 300 days or more, encashment is calculated on 300 days of EL alone. If your EL balance is less than 300 days, the shortfall can be made up using Half Pay Leave (HPL) at credit — but HPL is compensated at half the pay-and-DA rate, since it is a half-pay leave category, and the combined EL + HPL days counted still cannot exceed 300.
| Scenario | How it is treated |
|---|---|
| EL at credit ≥ 300 days | Encashment on 300 days of EL only; HPL balance is not encashed |
| EL at credit < 300 days, HPL available | Full EL encashed at full (Pay+DA) rate; shortfall up to 300 days filled from HPL at half rate |
| EL + HPL combined < 300 days | Encashment restricted to actual EL + HPL at credit |
Worked example
Emoluments = ₹67,700 × 1.60 = ₹1,08,320
Cash equivalent = ₹1,08,320 ÷ 30 × 300 = ₹10,83,200
Tax treatment — fully exempt for government employees
Leave encashment received by a Central or State Government employee at the time of retirement is fully exempt from income tax under Section 10(10AA)(i) of the Income Tax Act, 1961, with no monetary ceiling. This is different from the private sector, where the exemption under Section 10(10AA)(ii) is capped (currently at ₹25 lakh). This full exemption applies only to encashment on retirement/superannuation — not to encashment availed alongside LTC during service, which is treated as normal salary income.
Leave encashment with LTC (a separate, smaller scheme)
Separately from retirement encashment, an employee can encash up to 10 days of Earned Leave at a time while availing Leave Travel Concession (LTC), subject to an overall career limit of 60 days under this scheme (Rule 38-A, CCS Leave Rules). This LTC-linked encashment is taxable as salary and is not covered by this calculator, which is built specifically for the retirement/final settlement scenario.
When else is leave encashment payable?
- Retirement / superannuation: Full cash equivalent of EL (and HPL shortfall) at credit, as calculated above.
- Death while in service: Cash equivalent is paid to the family/nominee, calculated the same way, without any reduction.
- Resignation: Subject to specific government instructions; historically resignation cases were treated differently, so check the latest DoPT position with your DDO before relying on this calculator for a resignation case.
- Compulsory retirement / removal / dismissal: Governed by specific provisions; competent authority may reduce, but not fully deny, the cash equivalent in many circumstances.