Hr & Od Consultant
Sr. Execuitve Human Capital

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Hi All,
Is there any law for leave encashments? In my Organization, we have 16 ELs credited every year which can be accumulated ( max 45) & can be encashed at any given point of time. All ELs over & above 45 are encashed immediately.
Encashments are done on Basic+DA.
I want to know if we are following a healthy leave encashment policy.
Looking forward to your suggestion.

From India, Gurgaon
Th no of leaves u r encashing willbe too high. Normally an average of 15 leaves shd b e encashed n that too only in the yr end or while resigning. Also instaed of having a bifurcation of leaves, its btr to have a flat structure of leave. Let the employee take his leave for any reason. Leaves are a benefit to an employee. This is to reduce the confusion in calculations n thus to reduce the complexity!

Hello Shubhra

As per the Income Tax Laws...the following is the Procedure for "Leave Encashment", I am sure...this will help....

"Leave Encashment is taxed differently for following types of employees.

Government employees: Leave encashed during the continuation of service is taxable .

Leave encashed at the time of retirement or superannuation (leaving the job) is exempt from tax.

Non-Government employees: Leave encashed during the continuation of service is taxable.

In case of leave encashed at the time of retirement or superannuation (leaving the job) the exemption is limited to the least of the following:

10 month's average salary;

Rs. 2,40,000;

Amount actually received

Cash equivalent of leave salary standing to his credit not exceeding 30 days for each year of actual service .

The limit on exemption is applied on the total payment received towards leave encashment from two or more employers, in the same year or in different years.

Salary means last drawn salary and includes basic salary and dearness allowance if terms of employment so provide and also includes commission based on a fixed percentage of turnover.

Average Salary is calculated on the basis of average salary for the 10 months immediately preceeding the retirement or superannuation."

I am sure, this will help.


Sanjeev Sharma


From India, Mumbai
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