Leave encashment refers to an amount of money received in exchange for a period of leave not availed by an employee. Encashment of accumulated leave can be availed by an employee at the time of retirement, during the continuation of service, or at the time of leaving the job.
There is no statutory or legal requirement for employers to offer leave encashment. How is it taxed? … During service: Leave encashed during service is fully taxable and gets added to “income from salary” for taxation. This is applicable for the government as well as private company employees. Leave salary encased during the period of service is fully taxable.
You can either encash or clear your annual leave if your employment was terminated. If the unused leave is encashed, it should be calculated at the gross rate of pay based on your last drawn salary. However, if an employee is terminated for misconduct, any unused leave will be forfeited.