How many days of leave can a central government employee encash at retirement?

Up to 300 days of earned leave. Half pay leave can be added to make up any shortfall, as long as the total stays within 300 days.

Is leave encashment at retirement taxable?

Not for government employees, for whom it is fully exempt. Other employees get an exemption of up to ₹25 lakh over their working life, subject to the other limits in the rules.

Is HRA included in leave encashment?

No. Central government leave encashment uses basic pay plus DA only.

Is leave encashed during service taxable?

Yes. Leave encashed while still in service is taxed as salary for everyone, including government employees.

Leave encashment explained

Updated 11 October 2026

Leave encashment is the cash you receive for unused earned leave, most often at retirement. For central government employees it is (basic pay + DA) ÷ 30 × the number of leave days, up to a maximum of 300 days, and it is fully tax-free. Private-sector employees get it as per company policy and state law, with a tax exemption of up to ₹25 lakh.

Leave encashment for central government employees

Earned leave (EL): 30 days a year, credited in advance as 15 days on 1 January and 15 days on 1 July.
Maximum accumulation: 300 days. Leave above that lapses, so watch your balance in the years before retirement.
Half pay leave (HPL): 20 days a year. At retirement, HPL can also be encashed to make up any shortfall, as long as EL and HPL together do not exceed 300 days. HPL is encashed at half pay plus DA on it.
Rate: the cash equivalent is basic pay plus DA on the date of retirement, divided by 30, for each day.

Employees can also encash 10 days of earned leave when they avail Leave Travel Concession (LTC), up to 60 days over a career. This is separate from retirement encashment, and the rules for counting it against the 300-day limit have changed over time, so check your department's latest instructions.

The formula

Leave encashment = (basic pay + DA) ÷ 30 × earned leave days (maximum 300)

Other allowances such as HRA and transport allowance are not included.

Worked example

Worked example. An officer retires with basic pay of ₹1,00,000 and DA at 60% (₹60,000), so basic + DA = ₹1,60,000. With the full 300 days of earned leave, encashment = ₹1,60,000 ÷ 30 × 300 = ₹5,333.33 × 300 = ₹16,00,000. The whole amount is tax-free because the officer is a government employee. If the officer had only 240 days of EL and 120 days of HPL, they could encash the 240 days of EL in full (₹12,80,000) and 60 days of HPL at half the rate to reach 300 days.

For the HPL part in that example: half pay is ₹50,000, plus DA at 60% on it (₹30,000), so ₹80,000 ÷ 30 × 60 = ₹1,60,000. Total encashment = ₹12,80,000 + ₹1,60,000 = ₹14,40,000. The leave encashment calculator does this for any pay and balance.

Leave encashment in the private sector

How much leave you can carry forward and encash depends on your employment contract, company policy and state Shops and Establishments Act.
The Occupational Safety, Health and Working Conditions Code, one of the four labour codes in force from 21 November 2025, lets workers carry forward up to 30 days of annual leave and encash leave in the cases it specifies. Rules are still being finalised in many states.
Most companies pay encashment on basic pay (sometimes basic + DA) for each day, divided by 30 or 26 depending on policy.

See how the labour codes change your salary for more.

How leave encashment is taxed

While in service

Leave encashed while you are still working is fully taxable as salary, for both government and private employees.

At retirement or resignation

Central and state government employees: fully exempt.
Other employees: exempt up to the least of (1) the amount actually received, (2) ₹25 lakh (a lifetime limit, raised from ₹3 lakh in 2023), (3) 10 months' average salary, and (4) the cash value of leave due, counting at most 30 days for each year of service. "Salary" here means basic + DA (+ commission based on turnover), averaged over the 10 months before retirement.

Under the Income-tax Act, 2025 these exemptions sit in section 19, which replaced section 10(10AA) of the old Act from 1 April 2026.

Worked example. A private-sector manager retires after 20 years with 200 days of leave and gets ₹4,00,000 of encashment. Average basic + DA over the last 10 months is ₹60,000. The four limits are: actual ₹4,00,000; ₹25,00,000; 10 × ₹60,000 = ₹6,00,000; and the leave balance of 200 days, which is within 30 days a year for 20 years, valued at ₹60,000 ÷ 30 × 200 = ₹4,00,000. The least is ₹4,00,000, so the whole amount is exempt.

Encashment on death

If an employee dies in service, the family receives the cash equivalent of the leave balance. Leave encashment received by legal heirs in this case is not taxable in their hands.