Introduction:
In a significant move, the Central Government has recently announced a noteworthy update concerning tax exemption on leave encashment for non-government salaried employees. Previously limited to Rs. 3 lakh under section 10(10AA)(ii) of the Income-tax Act, 1961, the government has now raised the limit to Rs. 25 lakh, effective from April 1, 2023. This amendment comes as a result of the proposal put forth in the Budget Speech, 2023, by the honorable Finance Minister. The revised limit applies to retirement or other cases where non-government salaried employees receive leave encashment payments.
Key Highlights:
Increased Limit: The new limit for tax exemption on leave encashment for non-government salaried employees has been raised to Rs. 25 lakh, compared to the previous limit of Rs. 3 lakh. This change aims to provide substantial relief and support to employees upon retirement or under other circumstances.
Multiple Employers: In cases where a non-government employee receives leave encashment payments from more than one employer within the same previous year, the aggregate amount exempt from income tax under section 10(10AA)(ii) of the Act should not exceed Rs. 25 lakh. This provision prevents individuals from surpassing the set limit when receiving payments from different employers.
Adjustments for Previous Years: The amount exempt from income tax under section 10(10AA)(ii) of the Act should not exceed Rs. 25 lakh, taking into account any previous tax exemptions already granted. This ensures that the limit is applied effectively, considering any previous years where tax exemption was availed.
Conclusion:
The Central Government's decision to increase the tax exemption limit on leave encashment for non-government salaried employees to Rs. 25 lakh is a welcome step in providing financial relief during retirement or other circumstances. This move acknowledges the evolving needs and aspirations of the workforce, aligning with the government's commitment to fostering employee welfare. Non-government salaried employees can now avail higher tax exemptions on their earned leave encashment, thereby helping secure their financial future.
To learn more about the updated regulations and guidelines, interested individuals can refer to Notification No. 31/2023 dated May 24, 2023, available at the official e-gazette website: [https://egazette.nic.in].
