Annual Leave / Earned Leave Rules India 2025 — Encashment & Your Rights
How many leaves do you legally get? Can your company deny leave? What happens to unused leaves when you resign? Understanding leave rules protects you from being short-changed.
What Laws Govern Leave in India?
Leave entitlements in India are governed by:
- Factories Act, 1948 — for factory workers
- State Shops & Establishments Acts — for office/retail workers (most private employees)
- Specific Central Acts (Mines Act, Plantation Labour Act, etc.)
- Employment contract / company policy (if more beneficial)
The state's Shops & Establishments Act is most relevant for IT, banking, retail, and service sector employees.
Earned Leave (Annual Leave) — How Much Do You Get?
| Applicable Law | Annual Earned Leave Entitlement |
|---|---|
| Factories Act | 1 day per 20 days worked (≈12 days/year after 240 days of work) |
| Maharashtra Shops & Establishments | 21 days after 12 months of service |
| Karnataka Shops & Establishments | 12 days per year (1 per month) |
| Delhi Shops & Establishments | 15 days per year |
| Tamil Nadu Shops & Establishments | 12 days per year |
| Central Government employees | 30 days per year |
Most private companies give 12–21 days of earned leave per year. Many IT companies give 20–24 days as a competitive benefit.
Carry Forward of Earned Leave
| Law | Max Carryforward |
|---|---|
| Factories Act | 30 days |
| Most state Shops Acts | 30–45 days |
| Central Government | 300 days (accumulated) |
| Company policy (private) | Varies — typically 15-30 days |
Unused earned leave beyond the carryforward limit is typically lapsed — unless the company allows encashment.
Leave Encashment — Can You Get Money for Unused Leaves?
At Resignation / Retirement
Most laws require employers to pay employees for accumulated earned leave at the time of separation:
- At resignation — earned leave balance is paid as part of Full & Final settlement
- At retirement — all accumulated EL paid out
During Service (Mid-Year Encashment)
This depends on company policy. Not all companies allow mid-service leave encashment. Some allow it once a year for leaves exceeding a threshold.
Tax on Leave Encashment
| Category | Tax on Leave Encashment |
|---|---|
| Government employees (retirement) | Fully exempt |
| Private sector (retirement) | Exempt up to ₹25 lakh (2023 onwards, was ₹3 lakh) |
| Private sector (resignation) | Partially exempt — 10 months' average salary or actual, whichever lower |
Can Employer Deny Leave?
Employers can defer but generally cannot permanently deny earned leave. They have the right to:
- Ask you to take leave at a different time (operational requirements)
- Refuse leave if there aren't enough staff to cover
- Set advance notice requirements (e.g., 7 days for EL)
Employers cannot:
- Deny earned leave that has accrued
- Force you to lapse earned leave without encashment or carry forward
- Penalize you for taking entitled sick leave with medical certificate
"Every employee is entitled to leave with wages as per the applicable Act. Denial of such leave is an offense under the respective statute." — Factories Act, Section 79
Casual Leave — Different Rules
Casual Leave (CL) is different from Earned Leave:
- Typically 5–12 days per year
- Cannot usually be carried forward (lapses at year end)
- Intended for sudden/urgent short absences
- Not encashable in most policies
Sick Leave Rules
- Typically 6–12 days per year
- May require medical certificate for leaves beyond 2–3 consecutive days
- Under Factories Act — sick leave accrues similarly to EL
- Cannot be counted as Loss of Pay if within entitlement
Leave Without Pay (LWP / LOP)
If you take leave beyond your balance, it becomes Leave Without Pay (also called Loss of Pay / LOP):
- Salary deducted proportionally for LOP days
- PF is usually not deducted on LOP days (PF calculated on actual salary paid)
- Affects monthly salary — not the annual leave balance going forward
New Labour Code — What Changes?
The Code on Occupational Safety, Health and Working Conditions (OSH Code), 2020 proposed:
- Universal earned leave: 1 day per 20 days worked
- Eligibility after 180 days (reduced from 240 under Factories Act)
- Maximum accumulation: 30 days
Implementation is pending as of 2025 — currently original acts still apply.
Leave Balance or Policy Questions?
Ask Mulazim AI about your leave rights, encashment calculation, or denied leave situation.
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