Definition
Leave Encashment
Leave encashment is payment received for accumulated unused leave, typically at retirement or resignation, with specific tax exemptions for certain employees.
Leave encashment converts your unused, accumulated paid leave into cash, most commonly paid out when you retire or resign. Some employers also allow encashment during service.
The tax treatment depends on timing and employer type: leave encashment during service is generally taxable, while encashment at retirement enjoys exemptions — full for government employees and up to a notified limit for non-government employees. Encashment on death is treated favourably.
It forms part of your full and final settlement and is calculated on your salary and the leave balance carried. Knowing your leave policy and balance helps you plan your exit payout.
Related terms
- GratuityGratuity is a lump-sum payment an employer gives an employee for long service, generally payable after completing five years, with tax exemption up to a prescribed limit.
- Basic PayBasic pay is the fixed core component of your salary on which many other components and statutory contributions — like HRA, PF and gratuity — are calculated.
- Full and Final SettlementFull and final settlement (F&F) is the process of clearing all dues between employer and employee when employment ends, netting off salary, benefits and recoveries.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.