What is leave encashment? #
Leave encashment is the money received in exchange by an employee for unused leaves during that financial year. The encashment of leave balance can be availed by the employee during the service, retirement, or resignation.
How is leave encashment considered? #
Employees are qualified for different types of leaves such as sick leave, casual leave, and earned leave during their service of employment for each year. Many employees often don’t use all their leaves due to work requirements, absence of replacement, the deadline to complete the job, and so on. This would leave the employees with a balance of unused leave and demands the employer to repay the unused paid leave of the employees, which is called Leave Encashment.
Any leave encashment during service is fully taxable. However, relief under Section 89 can be claimed (refer to this circular No. 431 [F. No. 174/43/82-IT (A-II)], dated 12-9-1985.).