Tax exemption limit on leave encashment increased to Rs 25 lakh for non-government salaried employees.
The tax exemption on leave encashment of non-government salaried employees (in respect of the period of earned leave at his credit at the time of his retirement, whether on superannuation or otherwise) was earlier up to a limit of Rs.3 lakh only under section 10(10AA)(ii) of the Income-tax Act,1961(the Act).
In pursuance of the proposal in the Budget Speech, 2023, by the Hon’ble FM, the Central Government has notified the increased limit for tax exemption on leave encashment on retirement or otherwise of non-government salaried employees to Rs. 25 lakh w.e.f. 01.04.2023.
The aggregate amount exempt from income tax under section 10(10AA)(ii) of the Act shall not exceed the limit of Rs. 25 lakh where any such payments are received by a non-government employee from more than one employer in the same previous year.
Further, the amount exempt from income tax under section 10(10AA)(ii) of the Act shall not exceed the limit of Rs. 25 lakh as reduced by the tax exemption already allowed in the total income of the employee under section 10(10AA)(ii) of any previous year or years.
Notification No.31/2023 dated 24.05.2023 has been published and is available at https://egazette.nic.in.
What is leave encashment?
As per labour law, every salaried person is entitled to a minimum number of paid leave every year. However, an individual employee doesn’t need to utilize all the leave he is entitled to in a year. Most employers allow employees an option of carrying forward such unutilized paid leaves.
However, there are different types of leaves mentioned in the leave policy of a company and the leave policies may differ from company to company.
