Encashment Of Leave

Leave encashment Policy

Leave Encashment

The rules for encashment of leave shall cover all regular employees of the company, excluding those on deputation from Government / other organizations and company employees on deputation to others.

The authorities who are Competent to sanction leave shall be the sanctioning authority for approving encashment of leave under these rules.

Encashment Benifits:

  1.  The encashment of leave shall be regulated on the basis of the last pay drawn which includes basic pay, dearness allowance, personal pay.

2.  The encashment benefit shall not be reckoned as Wage / Salary while working out overtime, Gratuity, Provident Fund, bonus under the Bonus Act, etc.


  1.  The leave to be encashment under these rules would be Earned Leave only and not any other kind of leave.

The encashment benefit will be regulated on the basis of the last pay drawn which should be the monthly
rate of pay of the employee immediately before proceeding on leave. A month will generally a calendar
month of 30 days.

Illustration :

Last pay drawn X no. of days for which encashment allowed                                           ________________________________________________                                                                                                             30



  1.  Earned leave standing to the credit of an employee may be encashed at his option only once in a calendar year provided that the quantum of leave to be encashed in each case is not more than 50% of the Earned Leave at credit or 30 days earned leave whichever is less.
  2. An employee who is released on acceptance of his/her resignation shall be allowed encashment of Earned Leave standing to his/her credit as on the date of release, after adjusting the notice period not served if any.
  3.  The trainees are allowed to encash unavailed Leave with Full Stipend at the time of completion of their training. In calculating the period of Leave with Full Stipend, all holidays and off-days whether occuring during or end of the period shall be excluded.


The encashment of leave will not be admissible on dismissal or removal from service of an employee. In case of termination simplicitor, an employee will be eligible for encashment of earned leave as per rules above.


The employee shall be paid leave salary in lieu of earned leave due to him.


If any leave due to an employee is not utilised, he shall be allowed to encash the unavailed portion of the earned leave.


The leave salary in respect of earned leave standing to the credit shall be paid to the nominee(s) declared for receiving the Provident Fund and Gratuity or in the absence of nominee to his legal heir(s).


For leave encashment under rule-while in service, an employee shall be required to apply in writing to the sanctioning authority. In all other cases it shall be settled by appropriate authority.

Tax on Leave Encashment:

Government Employee: The entire amount received as leave encashment is tax free.

Non Government Employee:

The leave encashment for private sector employees is stated in Section 10 (10AA) and is minimum of the following 4 factors:

  1. Amount received as leave encashment
  2. Maximum cap as stated by government – Rs 3 Lakhs
  3. Last 10 months average basic salary & dearness allowance before leaving the job
  4. Cash equivalent of the leave balance, subject to maximum of 30 days for each completed year of service


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