Income Tax Exemption On Leave Encashment Hiked From 3 Lakh To 25 Lakh Rupees On Retirement For Private Sector Employees

Tax Relief on Leave Encashment: The Central Government has given great relief to the employees working in the private sector. The Finance Ministry on Thursday increased the tax exemption limit on leave encashment received by salaried employees working in the private sector on retirement to Rs 25 lakh. To implement this order, the Finance Ministry has also issued a Gazette Notification on 24 May 2023. The new proposal will be considered applicable from April 1, 2023.

Presenting the budget for the current financial year 2023-24 on February 1, 2023, Finance Minister Nirmala Sitharaman announced the retirement leave of employees working in non-government sectors. It was announced to increase the limit of tax exemption on encashment from the existing level of Rs 3 lakh to Rs 25 lakh. If any employee’s leave is left, then he is given leave encashment in lieu of such unused leave.

Till now non-government employees used to get tax exemption on leave encashment up to an amount of Rs 3 lakh on retirement. This limit was fixed 21 years ago in 2002. Since then there has been no change in this limit. CBDT has issued a notification saying that the amount received by any non-government employee from one or more employers for tax exemption should not exceed Rs 25 lakh under section 10(10AA)(ii) of Income Tax .

It is believed that the government has given this tax exemption to provide relief to the middle class people from inflation. At the same time, with this decision of the government, the employees working in the non-government sector will have many other benefits. This will result in huge savings in the tax liability of the people. This step of the government is also being seen as helping in retirement planning.

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