Earned Leave (EL) — Meaning, Rules, and How It Works in India

Earned Leave (EL), also known as Privilege Leave (PL) or Annual Leave, is paid leave that an employee accrues based on continuous service. It is distinct from casual leave (CL) and sick leave (SL) in its purpose, accrual rate, accumulation cap, and encashment treatment under Indian tax law.

Accrual rates

• Central Government employees — 30 days of EL per year, credited 15 days each on 1 January and 1 July
• State Government employees — varies by state, typically 22–30 days
• Factory workers — 1 day for every 20 days worked under the Factories Act
• Shops and Establishments — typically 12–21 days per year, varies by state
• IT and corporate sector — typically 21–30 days per year, governed by company policy

Accumulation limits

Central Government employees may accumulate up to 300 days of EL. State Government caps vary from 240 to 300 days. Private sector caps typically range from 30 to 90 days carried forward annually, with excess lapsed at year-end unless company policy permits encashment.

Encashment of earned leave

On retirement or resignation, accumulated EL can be encashed at the basic pay plus DA rate. For central government employees, the cap is 300 days. For private sector employees, encashment is governed by company policy and the relevant state Shops and Establishments Act.

Tax treatment of leave encashment

Under Section 10(10AA) of the Income Tax Act, leave encashment received on retirement from a Central or State Government employer is fully exempt. For private sector employees, the exemption is the lower of (i) actual amount received, (ii) ₹25 lakh (notified limit, increased from ₹3 lakh in 2023), (iii) 10 months average salary, or (iv) cash equivalent of un-availed leave (capped at 30 days per year of service).

How to apply for EL

EL is typically planned leave requiring advance approval from the supervisor, usually 7–30 days before the leave starts. The application is filed through the company HRMS or the equivalent government portal. EL cannot be combined with a notice period in most companies.

Difference from casual and sick leave

Casual leave (CL) is short-duration unplanned leave for personal exigencies — typically 7–12 days per year, not accumulable, no encashment. Sick leave (SL) is for medical absences — typically 7–12 days per year, may be capped at 60–90 days accumulation, encashment varies. Earned leave (EL) is planned vacation — higher accrual, longer accumulation, fully encashable.