What is Leave Encashment?

Leave encashment converts unused earned leave into a cash payment. Most employees encounter it just once, at retirement — which is exactly why the ceiling and the calculation are worth understanding well before that day arrives.

What leave encashment is

Earned leave that an employee has accumulated but not availed can be encashed — paid out in cash — rather than simply lapsing. The payment is calculated on the employee's pay and allowances at the relevant time, for the number of days being encashed.

The ceiling that applies

Under CCS (Leave) Rules, 1972, encashment at retirement is subject to a maximum ceiling on the number of days that can be paid out — commonly 300 days of earned leave — regardless of how much larger the employee's actual accumulated balance is. Any balance above the ceiling simply lapses; it is not carried forward or paid separately.

When it's paid

Leave encashment is most commonly paid on retirement, alongside other retirement benefits, but a limited encashment is also permitted in certain other circumstances — such as at the time of resignation or death while in service (subject to different rules), or during service in some specific circumstances. The precise entitlement depends on the nature of the exit and the rules in force at that time.