The term “leave encashment” also known as encash paid leave refers to a monetary payment made in return for unused vacation time. Employees can cash in their accumulated leave at any moment during their employment, including when they retire, continue to work or quit.

Employers are not required by law or statute to provide leave encashment. 

How does paid leave get taxed? 

Throughout the service: During service, leave is fully taxable and is added to “income from salary” for taxation purposes. Employees of both the government and commercial companies are affected. During the time of service, paid leave salary is fully taxable.

If your employment was terminated, you can either encash or clear your yearly leave. If you decide to cash in your unused vacation time, it should be computed at the gross rate of pay based on your most recent paycheck. Any unused leave will be forfeited if an employee is terminated for misconduct.