Tax exemption on leave encashment for non-govt salaried employees increased to Rs 25 lakh: Finance Ministry

New Delhi: In a significant move, the central government has raised the tax exemption limit on leave encashment for non-government salaried employees from Rs 3 lakh to Rs 25 lakh, effective from April 1. The decision comes in line with the proposal made in the Budget Speech by the Finance Minister.

The earlier provision under section 10(10AA)(ii) of the Income-tax Act, 1961, granted a tax exemption on leave encashment up to a maximum of Rs 3 lakh in respect of the earned leave at the time of retirement, whether on superannuation or otherwise.

FM increased limit of Rs 25 lakh for tax exemption on leave encashment

The Ministry of Finance issued a press statement stating that the increased limit of Rs 25 lakh for tax exemption on leave encashment would apply to non-government salaried employees. However, this limit would be subject to certain conditions.

Firstly, if a non-government employee receives such 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 shall not exceed the Rs 25 lakh threshold. Additionally, the amount exempt from income tax under section 10(10AA)(ii) of the Act shall not exceed Rs 25 lakh after reducing the tax exemption already granted in the employee's total income under section 10(10AA)(ii) for any previous year or years.

The decision to increase the tax exemption limit on leave encashment is expected to provide substantial relief to non-government salaried employees, enabling them to benefit from a higher tax exemption when receiving such payments during retirement or otherwise.

Revision aligns with govt's commitment to ease the financial burden

This revision aligns with the government's commitment to ease the financial burden on employees and improve their post-retirement benefits. The increased tax exemption limit on leave encashment recognises the importance of providing adequate financial support to individuals transitioning into the next phase of their lives.

(PSU Watch– India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)