25th May 2023, the Government of India has notified the changes on tax exemption limit increased on leave encashment for non-government salaried employees from 3 Lakhs to 25 lakhs. That comes into effect from the date of 1st April 2023.
- The tax exemption on leave encashment of non-government salaried employees was earlier up to a limit of Rs.3 lakh under section 10(10AA)(ii) of the Income-tax Act,1961(the Act).
- The maximum amount receivable by the employees as a cash equivalent on leave encashment in respect of the period of earned leave at his credit at the time of his retirement, whether on superannuation or others.
- The Government specified the amount of Rs. 25 lakhs as the limit concerning employees mentioned in that sub-clause who retire, whether on superannuation or other.
- The aggregate amount exempt from income tax under section 10(10AA)(ii) of the Act shall not exceed the limit of Rs. 25 lacks where a private employee receives any such payments from more than one employer in the same previous year.
- The amount exempt from income tax under section 10(10AA)(ii) of the Act shall not exceed the limit of Rs. 25 lahks as reduced by the tax exemption, which is allowed in the total income of the employee under section 10(10AA)(ii) of any previous year or years.
- The following least In the case of private employees’ leave salary will be exempt from tax under section 10(10AA) (ii) – Period of earned leave in months (*) × Average monthly salary (**)
- Average monthly salary (**) × 10,
- Maximum amount specified by the Central Government i.e. Rs. 3 lakhs. The Government specifies different amounts (i.e., ceiling limits) for different years.
- Leave encashment actually will be received at the time of retirement.”
You can get the official Notification on tax exemption on leave encashment
For more details Click on All about leave encashment and tax implication