Non-government Salaried Employees Tax Exemption Limit Increased to 25 Lakhs on Leave Encasement
The Central Government has notified an increase in the maximum limit for tax exemption on leave encashment on retirement or other events for non-government salaried employees to Rs. 25 lakh from April 1, 2023
Non-government Salaried Employees Tax Exemption Limit Increased to 25 Lakhs on Leave Encasement
The finance ministry has now notified the higher leave encashment exemption limit under income tax via notification dated May 24, 2023, in accordance with the UNION budget 2023 plan and pledge.
For salaried non-government employees, the new tax exemption raised ceiling on leave encashment rose to Rs. 25 lakh from Rs. 3 lakh.
Under section 10(10AA)(ii) of the Income-tax Act, 1961 (the Act), non-government salaried employees were previously only qualified for a tax exemption on leave encashment up to a maximum of Rs. 3 lakh in relation to the period of earned leave that was to their credit at the time of retirement, whether on superannuation or otherwise.
The Central Government has notified an increase in the maximum limit for tax exemption on leave encashment on retirement or other events for non-government salaried employees to Rs. 25 lakh from April 1, 2023, in accordance with the recommendation made by the Hon’ble FM in the Budget Speech, 2023.
If a non-government employee receives such payments from more than one employer in the same prior year, the total amount exempt from income tax under section 10(10AA)(ii) of the Act may not exceed the cap of Rs. 25 lakh.
Additionally, the amount exempt from income tax under section 10(10AA)(ii) of the Act may not exceed Rs. 25 lakh, less any tax exemptions already granted in the employee’s total income under section 10(10AA)(ii) of any prior year or years.
Notification No.31/2023 dated 24.05.2023 has been published and is available here
What is leave encashment?
Every salaried individual is entitled to a minimum amount of paid leave each year under labour legislation.
An individual employee does not, however, have to use all of his annual leave entitlement. Most firms provide their workers the choice to carry over such unused paid leaves.
However, the corporation offers a variety of leaves according to its internal leave policy. Company to company, it could differ. However, if available, the benefits can be used for all such leaves.
How to avail tax exemption for leave encashment
According to the Income Tax Website, the following employees working in the private sector are eligible for the tax exemption under section 10(10AA)(ii):
1. Earned leave time in months (*) multiplied by average monthly wage (**).
2. The average monthly wage (**) multiplied by 10 (30000/10=30000)
3. The notification’s maximum amount, which is $25,000,0000,
4. The actual amount of the leave encashment received at retirement
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