The employees can convert their leaves into cash by not taking them during their services. Governmental as well as non-government employees can opt for leave encashment. There is also tax exemption on the leave encashment.

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In 7 th pay commission the rules have changed a little regarding leave encashment. Here in this article we will discuss the rules and how leave encashment gets calculated in detail. As per the rules a government employee or a non government employee both can take the facility of leave encashment. The rules for encashment are:.

As per the Factories Act, the leave encashment must not exceed 60 days in a year. Under section 79 5 of the mentioned Act, the maximum numbers of days are said to be 30 days and if that exceeds the leave encashment will be nullified automatically. After 6 th pay commission the number of days has been increased to 60 days. Some of the companies give away the leave encashment amount to their employees every year to lowering the liabilities. The leave encashment depends on the basic salary of the employee.

Calculation of earned leave encashment

The leave encashment is being calculated on the basis of the monthly gross salary an employee is drawing. The gross salary consists of net pay and dearness allowances. There is one mathematical formula that is used to calculate the leave encashment for a year of an employee.

This is how the leave encashment is being calculated for a year. Leave encashment is considered as a part of income. It is said to be income from the salary.

A portion of the amount is deducted from the annual leave encashment before the income tax is been imposed. The rest amount, if falls under the income tax slab, is been taxed according to the Factories Act. According to the section 10 10AA of Factories Act, there are two categories of employees who can receive leave encashment.

There are some points to be noted to know how the taxing happens on the leave encashment: Under 7th Pay Commission. Investigation Allowance Under 7th Pay Commission.