A Few Key Things You Need to Know About Leave Encashment

Most organizations provide casual leaves, medical leaves and gazette holidays to their employees every year. On the off chance an employee fails to avail a few chunks of these leaves, they can be transferred to the following year. Another option is to apply for encashment of such leaves. The cashed-in amount can be earned through salary disbursement. Of course, this is conditional on how many days of leave encashment does the employee opt for.


When an employee receives the encashment amount, it’s treated as the salary. As a consequence, the leave encashment amount would be considered as a form of taxable income. In a few income tax provisions, leave encashment in India offers the benefit to the taxpayer of exemption from the tax liability.

How to calculate the taxability of leave encashment?

The exempted amount is deducted from the sum of money received from encashment.With intent to compute income tax, employees belonging to the following are considered namely,

  • Government employees
  • Non-Government employees

If both these types of employees fulfill the condition of continual service, the leave benefit payments can be availed during the service tenure and income tax relief can be appealed under section 89.

Section 89 of the Income Tax Act

This comprises of provisions that allow a taxpayer to claim dispensation to receive salary arrears/advance, gratuity, compensation on the assumption that the employee was terminated and payment pertaining to the commutation of pension.

It’s to be noted that in the event of the death of an individual, the leave encashment rendered to the bereaved family members is absolved from any tax deduction.

In the event of retirement or in case of resignation from the job, the actuarial valuation of leave encashment and the applicable tax exemption criteria are described below.

  • The dole of leave encashment is sanctioned to a government employee. This amount, although falls under the Income Tax Act, yet it’s fully exempted from tax liability under section 10 (10AA) (i).
  • By the same token, the non-government employees are also eligible for this benefit. Here also, the amount is tax deductible and either partially or fully free from deduction based on specific cases as per section 10 (10AA) (ii).
  • In the case of a non-government employee, at the time of retirement, leave encashment calculation of the accumulated leaves will be contingent on the following stipulations.
    • A cash payout equivalent to the number of not availed leaves based on a maximum one month leave period every year during the time the service is rendered.
    • A fixed amount designated by the Government equal to 10 times the average monthly salary.
    • The exact amount of leave encashment actually received after retirement.

Encashment Benefits

  • The leave encashment calculation is done on the basis of the final withdrawn salary. This includes the basic pay, medical allowance, dearness allowance, personal pay (applicable to allowances doled out to non-practicing doctors), allowances pertaining to Enhanced Disability Premium (EDP) and other staffs from the finance and accounts department.

The benefits dispensed with leave encashment are exclusive of salary/wage for overtime, PF, Gratuity, Performance Bonus etc.

3 Distinct Rights All Employees in India Must Be Aware Of

The Indian Labor Laws have numerous provisions that safeguard employee interests. Gaining an understanding of your rights as an employee is a stepping stone to properly securing them. Here’s a list of 3 rights that are admissible to every employee in India

  1. The all-important written employment agreement

This legal document contains all the terms and conditions that bind your employment. This agreement sets down the rights and obligations of both parties namely the employer and the employee. The primary intent is to provide security and protection to both parties and comply with consistent and conscientious regularity.

With a help of a well-drafted, professionally written Employment Agreement you can fend off potential disputes between the two parties. And in case, one such case surfaces, it offers a solution to the dispute as the document has clear-cut mention of every term of employment. You as an employee have the prerogative to seek advice on the agreement prior to acceding to it or signing it. It’s always a decent idea to invest some time in carefully reading the conditions stated in the agreement. Seek professional help when in doubt.

  • The maternity benefit

The realm of employee benefits in India took a big leap with the enactment of the Maternity Benefits Act (MBA) in the year 1961 for the cause of pregnant women employees in establishments. Previously a female worker could be sanctioned a maternity leave of 12 weeks of which 6 weeks were earmarked as post-natal leave. Now with an amendment in the Act, the paid maternity leave has been increased from 12 weeks to 26 weeks for women, especially those working in the private sector.

It’s to be noted that an employer can’t discharge or dismiss a female employee while she’s on maternity leave. Nor the conditions of her employment can be altered during this period. It’s unlawful to dismiss an employee because of the inescapable absence. This clause can, however, be countermanded in the event of gross misconduct by the employee or separate parallel employment with another establishment during the leave period.

The addendum of female employee benefits in India wrt maternity leave prevents an employer to hire a female worker within a month and a half from the date of her delivery or miscarriage. Women employees who are discharged during their maternity leave can still avail the benefit from the employer. Besides, employees have recourse toone extra month of paid leave if any complication related to pregnancy, premature delivery, miscarriage or medical termination occurs.

  • The protection from sexual harassment

It’s the sole responsibility of the employer to make sure that female employees, in particular, are safe and secure at their workplace. Every incident of sexual harassment no matter its magnitude demands the employer and line manager to quickly respond and take appropriate action. Because someone doesn’t show objection to unseemly conduct in the working environment, doesn’t imply that he/she is giving consent to the behavior.

With the introduction of the “Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act” in the year 2013, sexual misconduct at the workplace is a punishable offense under IPC. As one of the foremost employee benefits in Noida and elsewhere in India, a disgruntled female employee can seek remedial measures under this pioneering Act.

Every company is mandated by the law to formulate a policy to prohibit sexual harassment and promote a healthy working environment. The policy must precisely indicate the definition of sexual harassment, summarization of the penalties, framing of grievance redressal procedures and listing of individuals as members of an internal complaint committee to be approached for consultation. The law also delineates to see to it that there’s impartiality in the investigation.