Leave encashment calculation


First time we are introducing EL encashment benefit to our employees. I would like know whether EL encashment is calculated on Basic + DA or on Gross salary.


Ideally, Encashment to be provided on Basic+DA


Hi @Nanjappatrust

You can use this formula: Leave Encashment Amount = (Basic + DA)/26 * No of encashment days)

The tax exemption would be minimum of the below 4 points:

  1. Amount received as leave encashment – Rs 5 Lakhs
  2. Maximum cap as stated by government – Rs 3 Lakhs
  3. Last 10 months average basic salary & dearness allowance before leaving the job – Rs 2,10,000 (Rs 21000 X 10)
  4. Cash equivalent of the leave balance, subject to maximum of 30 days for each completed year of service – Rs 2,87,000 (as per calculation below)
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