Annual leave entitlement in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Annual leave entitlement in India is governed by a combination of central and state labour laws, and the rules vary depending on the establishment type, industry, and state where the employee works. There is no single universal number of days that applies to every employer.
The main laws that set leave entitlement
Three pieces of legislation cover most private-sector employees:
- Factories Act, 1948 — applies to workers in factories. Employees who have worked for 240 days in a calendar year earn one day of earned leave for every 20 days worked. For workers under 15 years of age, the ratio is one day for every 15 days worked.
- Shops and Establishments Acts — each state has its own version. These cover offices, retail, hospitality and most service-sector businesses. The quantum of annual leave differs by state — commonly in the range of one day per every 20 days worked, though some states are more generous.
- Plantations Labour Act, 1951 — covers tea, coffee, rubber and similar estates. Leave accrual rules differ again under this Act.
India's four consolidated Labour Codes are in force from 2025, and the Occupational Safety, Health and Working Conditions (OSH) Code consolidates many of these provisions. Until state governments fully notify the rules under the new Codes, the older central and state laws continue to apply in practice for most employers. Check the position in each state where you have employees.
How earned leave accrues and can be used
Earned leave (also called privilege leave or annual leave) accrues based on days actually worked. Under the Factories Act framework, an employee must complete a minimum period of service — typically 240 days in the preceding year — before the entitlement kicks in for the following year.
Key practical points:
- Carry-forward: most statutes allow unused earned leave to be carried forward, subject to a cap (often 30 days under the Factories Act, though state shops acts vary).
- Encashment: employees are generally entitled to encash leave that exceeds the carry-forward limit, or on separation. Encashment at the time of service is taxable as salary; encashment on retirement or resignation may attract partial tax relief under the Income Tax Act.
- Notice and approval: employers can require reasonable advance notice before leave is taken. The law also permits employers to refuse leave during peak production periods in factories, provided leave is rescheduled within the same year.
- Sick and casual leave: these are separate from earned leave and are often set by the applicable shops and establishments act for a given state. Sick leave and casual leave do not typically carry forward in the same way earned leave does.
Public holidays and national holidays
Public holidays are not the same as annual leave. India observes three national holidays by statute — Republic Day (26 January), Independence Day (15 August) and Gandhi Jayanti (2 October). Beyond these, state governments declare additional public holidays each year — typically ten to fourteen days depending on the state and year — covering local festivals and occasions.
Most employers are required to grant paid time off on declared public holidays, though industrial establishments sometimes offer a compensatory day off or pay in lieu if an employee must work.
What the employment contract must say
Even where a statute sets a minimum, your employment contract and HR policy can offer more generous leave — and many employers do, particularly for white-collar roles where four to five weeks of combined leave is common. The contract cannot offer less than the statutory minimum.
Your leave policy should clearly state:
- The types of leave available (earned, sick, casual, maternity, paternity)
- How and when leave accrues
- The carry-forward cap
- The encashment rules
- The notice period required for each type of leave
Maternity leave is a separate and significant entitlement under the Maternity Benefit Act — 26 weeks for the first two children for establishments meeting the threshold employee count. This sits outside the earned leave framework entirely.
Keeping records and staying compliant
Employers are required to maintain a leave register for all employees, recording leave earned, taken and carried forward. Under the factory and shops act frameworks, this register must be available for inspection by labour authorities.
Payroll needs to correctly account for leave encashment at separation, which feeds into the full and final settlement calculation. Earned leave encashment is computed on the basis of the employee's last drawn basic salary, and the number of days encashed must match the leave register. Errors here are a common source of disputes at the time of exit.
If you operate across multiple states, you will effectively be managing several parallel leave frameworks — each with its own accrual rates, carry-forward caps and public holiday calendars. Documenting the applicable rules state by state, and building them into your payroll process, is the most reliable way to stay on the right side of compliance.
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