Leave Encashment

Leave Encashment

Every salaried person as per labor law is entitled to a minimum number of paid leave every year. However, it is not necessary that an individual employee utilities all the leave he is entitled for a year. In fact, most employers allow the employees an option of carrying forward such unutilised paid leaves. This would invariably leave the employee with an accumulated unutilised leave balance at the time of retirement or resignation from the company as the case may be. This compels the employer to compensate the unutilised paid leave of the employees. This concept is better known as leave encashment.

Any leave encashed during service is fully taxable and forms part of ‘income from Salary. However, a relief under Section 89 can be claimed.