Understanding Leave Policies in India
Leave entitlements in India are governed by a complex web of central and state legislations, primarily the Factories Act, 1948 for manufacturing units and various Shops and Establishments Acts enacted by individual states for commercial establishments. Understanding these laws is essential for employers to ensure compliance and for employees to understand their rights.
The leave policy framework in India recognizes that employees need time off for various reasons - rest and recreation (Earned Leave/Privilege Leave), personal emergencies (Casual Leave), health issues (Sick Leave), and significant life events (Maternity/Paternity Leave). While some leave types are statutory mandates, others are provided at the employer's discretion.
This comprehensive guide covers the statutory leave requirements across Indian states, explaining the types of leave, eligibility criteria, accumulation rules, and encashment policies. Whether you're an HR professional drafting a leave policy or an employee understanding your entitlements, this guide provides the clarity you need.
Types of Leave in India
Earned Leave (EL) / Privilege Leave (PL)
Also known as Privilege Leave, this is accrued based on days worked. Under the Factories Act, one day of earned leave is granted for every 20 days of work. For shops and commercial establishments, this varies by state, typically ranging from 12 to 30 days per year.
Key features: Can be accumulated, encashable on retirement/resignation, usually requires prior approval.
Casual Leave (CL)
Provided for urgent personal matters that cannot be planned in advance. Most state Shops Acts mandate 7-12 days of casual leave annually. Cannot be accumulated or encashed.
Key features: For genuine emergencies, cannot be combined with other leave types, use-it-or-lose-it policy applies.
Sick Leave (SL) / Medical Leave
Granted for health-related absences. Most states provide 7-14 days of sick leave annually. Medical certificate may be required for extended sick leave.
Key features: Can be accumulated in some states, may be half-pay or full-pay depending on duration, medical proof required for extended periods.
National & Festival Holidays
State laws mandate 8-12 paid holidays per year, including three national holidays (Republic Day, Independence Day, Gandhi Jayanti) and selected festival holidays based on local customs.
Key features: Mandatory paid holidays, employer must declare holiday list at year beginning, work on holidays attracts overtime wages.
Earned Leave Rules by State
Earned Leave entitlement varies significantly across states. The table below summarizes the EL provisions under various Shops and Establishments Acts:
| State | EL Entitlement | Max Accumulation | Encashment |
|---|---|---|---|
| Maharashtra | 21 days per year (after 240 days work) | 42 days | On resignation/termination |
| Karnataka | 1 day per 20 days worked | 30 days | On exit only |
| Delhi | 15 days per year | 45 days | Allowed annually |
| Tamil Nadu | 12 days per year | 24 days | On exit |
| Telangana | 15 days per year | 30 days | On exit |
| Gujarat | 21 days per year | No limit | On exit |
Leave Encashment Rules
Leave encashment refers to the payment made to employees for unused leave balances. The rules vary by state and establishment type:
Factories Act, 1948
Under Section 79, accumulated earned leave can be encashed at the time of leaving service only. During service, encashment is not permitted - the worker must take the leave.
Shops and Establishments Acts
Many states allow annual encashment of a portion of accumulated leave. For example, Delhi permits encashment of up to 30 days per year. Check your specific state Act for applicable rules.
Tax Implications
Under Section 10(10AA) of the Income Tax Act: (1) Government employees: Full encashment exempt, (2) Non-government employees: Exemption limited to least of: (a) Actual amount received, (b) 10 months' average salary, (c) Cash equivalent of unavailed leave (max 30 days per year of service), (d) ₹3,00,000 (overall limit).
Special Leave Types
Maternity Leave
26 weeks (6 months) of paid maternity leave for the first two children, and 12 weeks for subsequent children. Covered under the Maternity Benefit Act, 2017.
Paternity Leave
Not statutorily mandated for private sector employees. Government employees receive 15 days. Many private companies voluntarily offer 5-15 days.
Bereavement Leave
Not mandated by law. Most organizations provide 3-7 days for death of immediate family members as part of their leave policy.
Study/Sabbatical Leave
Discretionary benefit provided by employers for higher education or professional development. Terms vary by organization.
Employer Compliance Requirements
Key Compliance Obligations
- • Maintain leave records for minimum 3 years (Factories Act) or as prescribed by state law
- • Display leave rules at conspicuous place in the establishment
- • Issue leave cards or statements to employees showing leave balance
- • Process leave applications within reasonable time
- • Pay leave encashment dues with full and final settlement
- • Cannot refuse earned leave arbitrarily (Factories Act)
Non-compliance with leave-related provisions can result in penalties under the respective Acts, including fines and imprisonment for repeated violations. Employers should ensure their leave policies meet or exceed the statutory minimums.