Rs 25 lakh is now tax exemption limit on leave encashment

This limit for income tax exemption is applicable for non-government salaried employees starting 1 April, 2023

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There is news for non-government salaried employees retiring on or after 1 April 2023. They will now be able to avail the benefit of the extended tax exemption limit of leave encashment.

Labour laws state that salaried people are entitled to a minimum number of paid leave annually. However, not everyone avails of those leaves in a year. Organisations usually allow employees to carry forward the unutilised paid leaves. At the time of retirement,therefore, the employees have in hand a significant number of accumulated unused leaves, which the employers compensate the employees for. This is leave encashment.

The extention of the leave encashment limit from Rs 3 lakhs up to Rs 25 lakh has been approved by the Central Board of Direct Taxes (CBDT).

According to the notification, the exercise of the powers conferred by sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government, having regard to the maximum amount receivable by its employees as cash equivalent of leave salary in respect of the period of earned leave at their credit at the time of their retirement, whether superannuation or otherwise, hereby specifies the amount of Rs. 25,00,000 (twenty-five lakhs rupees only) as the limit in relation to employees mentioned in that subclause who retire, whether on superannuation or otherwise.

The notification comes into effect from 1 April, 2023 states the notification.

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