Leave Encashment Letter Format
Record the payment for unused earned leave on exit, retirement or during service, with the computation and tax treatment.
What it is
Leave encashment is payment in place of earned or privilege leave that an employee has not taken. It is usually paid on retirement or resignation as part of the final settlement, and in some organisations during service under the leave policy. The letter states the number of days encashed, the rate per day (usually basic plus DA), the gross amount, any tax exemption, the TDS and the date of payment.
When it is used
- Final settlement on resignation or retirement.
- Encashment during service where the policy allows.
- Settling leave of a deceased employee with the legal heirs.
What the template covers
- Employee details, PAN and type of encashment
- Leave days encashed and rate per day
- Total encashment amount
- Employer type and completed years of service
- Exempt and taxable portion, TDS
- Payment timeline and authorised signatory
Details you will need
The generator asks for the following. Fields marked with an asterisk in the form are required; the rest can be left blank and filled in later in Word.
Letter
Letter Date
Company
Company Name; Company Address
Employee
Employee Name; Employee ID; Designation; PAN
Encashment
Encashment Type; Leaves Encashed (days); Basic + DA per day (₹); Total Encashment Amount (₹); Effective Date of Encashment
Tax
Employer Type; Completed Years of Service; TDS Deducted on Taxable Portion (₹); Payment within (working days of the effective date)
Signatory
Authorised Signatory; Designation
Stamp duty, registration and filing
Leave encashment received during service is fully taxable as salary. On retirement or leaving, non-government employees get an exemption up to ₹25 lakh in a lifetime, subject to the conditions in the law; government employees are fully exempt. Pay it with the full and final settlement, and check the State rules on carrying forward and encashing leave.
Generate the Leave Encashment Letter
Fill in the form and download the draft as a Word file. It is a general template, not legal or professional advice; have it reviewed for your facts before you sign or rely on it.
Need this checked against your facts, or the registration or filing that follows (e.g. PF, ESI, TDS on salary)? Contact SKAG and Associates
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Frequently asked questions
Is leave encashment on resignation taxable?
The amount is exempt up to the limits in the income-tax law (₹25 lakh lifetime for non-government employees); any excess is taxable.
How is leave encashment calculated?
Usually as last drawn basic plus DA divided by 26 or 30 (as the policy states) multiplied by the leave days encashed.
Can an employer refuse to encash leave?
It depends on the leave policy and the State law. Many State laws require payment for accumulated leave on separation.
This page gives general information for reference only. Laws, stamp duty rates and filing requirements change and differ between States, so confirm the current position for your case. Related: all document templates · free tax calculators · compliance calendar and guides.