Budget 2023 has proposed increasing the limit of tax exemption on leave encashment on retirement of non-government salaried employees from Rs 3 lakh to Rs 25 lakh.
“The limit of Rs 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was Rs 30,000 pm. In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh,” Sitharaman said in her Budget 2023 speech.
The Annexure issued after the Union Budget announcement states that encashment of earned leave up to 10 months of average salary, at the time of retirement in case of an employee (other than an employee of the Central Government or State Government), is exempt under sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act (“the Act”) to the extent notified.
As announced by Finance Minister Sitharaman, the maximum amount which can be exempted will be extended to Rs 25 lakh from April 1, 2023.
Leave encashment is the amount that an employee gets in exchange of a period of leave which they have not availed. It must be noted that this is calculated on basis of the employees' basic pay.
"The leave encashment exemption is likely to be a significant boon, particularly in the corporate and startup sectors," says Shreya Gupta, publicist at Four Founders PR.
The leave encashment proposal was among the five major announcement FM Sitharaman made in her speech for Budget 2023, which she deemed as a budget for the middle class of India.
Among other big measures, the government introduced a slew of changes to the 'new income tax slab' in order to reduce the tax liabilities for middle class individuals. The tax rebate under the new regime has been extended on income up to Rs 7 lakh as per Section 87A, as against Rs 5 lakh. The highest surcharge rate has been reduced to 25 percent from 37 percent in the new slab, FM said.
First Published: Feb 1, 2023 5:36 PM IST
