India Leave Policy 2026: earned leave standardised at 1 day per 20 working days under the OSH Code, with a 30-day carry-forward cap. Casual leave lapses at year-end and cannot be encashed. Sick leave also lapses at year-end. Leave encashment at resignation: tax-exempt up to Rs.25 lakh under Section 10(10AA).
Earned Leave (Privilege Leave)
Under the Occupational Safety, Health and Working Conditions Code 2026 (final rules notified May 2026), earned leave accrues at 1 day per 20 working days. Working 240 days earns 12 days. The carry-forward cap is 30 days. Any earned leave beyond 30 days must be encashed annually by your employer – it cannot simply lapse. Encashment formula: Basic Salary divided by 26, multiplied by leave days.
State minimums under Shops Acts: Maharashtra 21 days, Delhi 15 days, Karnataka 12 days, Tamil Nadu 12 days, Telangana 15 days, Rajasthan 15 days. Where the state Act is more generous, that provision applies.
Casual Leave (CL)
Typically 7-12 days per year: Delhi 12, Karnataka 12, Maharashtra 8, Tamil Nadu 12. Cannot be taken for more than 3 consecutive days. Cannot be combined with earned leave. Cannot be carried forward past year-end – unused CL lapses on December 31 or March 31. Cannot be encashed under any circumstances. This is statutory, not a company policy.
Sick Leave (SL)
Varies by state: Delhi 12 days, Karnataka 12 days, Maharashtra 7 days. Medical certificate required for absences beyond 2-3 consecutive days. Like CL, sick leave lapses at year-end and cannot be encashed.
What the New Labour Codes Changed
The Four Labour Codes consolidate 13 older laws. Key change: the 30-day earned leave carry-forward cap and explicit right to annual encashment for surplus leave. What did not change: the CL and SL encashment prohibition, and state-level variation. As of July 2026, Maharashtra and Rajasthan have notified rules; other states retain existing Factories Act and Shops Act provisions until they do.
Leave Encashment Tax – The Rs.25 Lakh Rule
During employment: fully taxable income in that year.
At resignation or retirement: tax-exempt up to Rs.25,00,000 under Section 10(10AA) of the Income Tax Act (raised from Rs.3 lakh in Budget 2023, unchanged in Budget 2026). This is a lifetime cumulative limit across all employers – not a fresh Rs.25L per job. Government employees: full exemption with no monetary cap. Applies under both old and new tax regimes.
Special Leave for Women
- Maternity leave: 26 weeks paid for first two children, 12 weeks from third child, for establishments with 10 or more employees.
- Continuity of service: Maternity leave does not break service for gratuity, earned leave accrual, or seniority. This is protected under law.
- Creche facilities: Establishments with 50 or more employees must provide creche or allowances under OSH Code final rules (May 2026). Women entitled to four visits per day without affecting leave balance.
- Miscarriage leave: 6 weeks paid leave on medical certificate.
How to Verify Your Leave Entitlement
- Read your appointment letter. Company policy must meet or exceed state statutory minimums. If it does not, the statutory minimum is enforceable.
- Check which law applies. Factories, IT companies, and shops fall under different statutes in most states.
- Track leave in writing. Request HR leave statements before applications. Errors are common.
- Do not let earned leave lapse. Surplus beyond 30 days must be encashed by your employer.
- Claim encashment at resignation in writing. Verify calculation in full-and-final settlement.
Frequently Asked Questions
Can I carry forward casual leave?
No. Casual leave lapses at year-end under every state Shops Act. No exceptions.
How many days of earned leave can I accumulate?
30-day cap under OSH Code. Excess must be encashed by employer at year-end.
Is leave encashment taxable?
During employment: fully taxable. At resignation or retirement: tax-exempt up to Rs.25 lakh under Section 10(10AA) – lifetime cumulative across all employers.
My employer says unused earned leave will lapse. Is that legal?
No, if leave exceeds the 30-day cap. The OSH Code requires excess earned leave to be encashed annually, not forfeited.
Does maternity leave affect earned leave accrual?
No. Maternity leave counts as days worked under the Maternity Benefit Act and OSH Code.
Can an employer deny sick leave?
With a valid medical certificate, paid sick leave up to the statutory minimum cannot legally be denied under the applicable Shops Act.
I resigned with 15 days earned leave pending. Will I get paid?
Yes. Accrued earned leave must be paid in your full-and-final settlement: Basic Salary divided by 26, multiplied by leave days.
Related Guides
- Maternity Leave in India 2026: Entitlements, Pay and Rights Under the Maternity Benefit Act
- ESI Scheme India 2026: Eligibility, Benefits, Contribution Rates and How to Claim
- Employment Bond in India 2026: Legal Rights, Penalties and What to Do
- Minimum Wages in India 2026: State-Wise Rates and Your Legal Rights
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