Government increases tax exemption limit on leave encashment, relief up to ₹ 25 lakh
The Finance Ministry has increased the tax exemption limit on cash in lieu of retirement leave to Rs 25 lakh. So far, the tax exemption limit for non-government employees on leave encashment i.e. cash received in lieu of holidays was only Rs 3 lakh. This limit was fixed in the year 2002 when the higher basic salary in the government sector used to be only Rs 30,000 per month.
The Central Board of Direct Taxes (CBDT) said in a statement that the total limit of tax exemption under section 10(10AA)(2) of the Income Tax Act shall not exceed Rs 25 lakh. This section deals with payments to non-Government employees from employers. According to CBDT, the system of tax exemption on the maximum amount of Rs 25 lakh received by non-government employees in lieu of leave encashment will be applicable from April 1, 2023. The announcement in this regard was made in the budget proposal for the financial year 2023-24.
Finance Minister Nirmala Sitharaman had said in her budget speech that the tax exemption limit on amount received as leave encashment for non-government sector employees would be increased from Rs 3 lakh to Rs 25 lakh.
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