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LEAVE ENCASHMENT & TAXABILITY
The Free Press Journal - Indore
|October 30, 2025
Employees of every organisation are eligible for leave. The purpose of granting leave to employees is to meet certain emergencies (Casual and Sick Leave) whereas Privileged Leave is granted so that employees refresh themselves from the strenuous work.
It may so happen that an employee cannot/ does not consume his privileged leave and hence organisations have rules for carry forward of unused leave as well for encashment of the unused leave.
What counts as leave encashment?
Employers may allow encashment during service or at the time of retirement, resignation, or termination. While it is a valuable benefit, its tax treatment varies depending on the timing of receipt and the nature of the employment. Leave encashment typically applies to earned/privilege leave that accrues annually. Many organizations cap accruals (often at 30 days per year) and define what proportion can be encashed. The amount payable is based on “salary” as per the employer's policy and the definition for exemption purposes.
Tax treatment during service:
This story is from the October 30, 2025 edition of The Free Press Journal - Indore.
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