Leave Salary Encashment Limit Hike: The Central Board of Direct Taxes (CBDT) has notified the increase of the leave salary encashment limit for non-Government employees to Rs 25 lakh. The previous limit was just Rs 3 lakh.
The increased leave encashment limit will be applicable from FY 2023-24, starting from April 1, as per the notification.
The official notification was issued on May 24. Here’s what it says:
“In 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 sub-clause who retire, whether on superannuation or otherwise.
“This notification shall be deemed to have come into force with effect from the 1st day of April 2023,” it added.
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The CBDT’s notification aims to implement the Budget 2023 proposal that promised to increase the income tax exemption limit on earned leave encashment for non-government employees to Rs 25 lakh from Rs 3 lakh.
“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,” the Finance Ministry said today.
“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,” it added.
The leave encashment limit for non-government employees was last fixed in the year 2002 at Rs 3 lakh.
Apart from leave encashment, the Finance Ministry has already notified several other Budget 2023 proposals for the benefit of middle-class taxpayers and senior citizens. This year’s budget increased the tax rebate limit under the New Tax Regime to Rs 7 lakh, making income up to this limit tax-free for those who opt for the New Regime. In the case of salaried employees, no tax needs to be paid due to Rs 50,000 standard deduction on salary allowed in the New Tax Regime.
