Government Increased limit for tax exemption on leave encashment for non-government salaried employees.
Earlier, As per section 10(10AA)(ii) of the Income Tax Act, 1961 (the Act), Exemption for leave encashment (in respect of the period of earned leave at his credit at the time of his retirement, whether on superannuation or otherwise) in case of non-government salaried employees was up-to a limit of INR 3 Lakh.
CBDT through Notification No. 31/2023 dated 24-05-2023 has increased exemption for leave encashment in case of non-government salaried employee from INR 3 lakh to INR 25 lakh. This notification will be effective from 01-04-2023 and is relevant from a broader taxation advisory services perspective for employees and employers evaluating salary-tax treatment and exemption planning.
Where any such payments are received by a non-government employee from more than one employer in the same previous year, then the aggregate exemption under section 10(10AA)(ii) of the Act shall not exceed the limit of INR 25 lakh.
Further, the exemption under section 10(10AA)(ii) of the Act shall not exceed the limit of INR 25 lakh as reduced by the tax exemption already allowed under section 10(10AA)(ii) of the Act in any previous year or years. In cases involving retirement structuring, compensation planning, or multiple employer payouts, aligned direct tax advisory services may help in evaluating the correct exemption position.
Article contributed by:
Uday Jangra (Senior Executive – Direct Tax)
MBG Corporate Services
Additional Resources
To further understand the broader direct tax implications of salary-related exemptions, employee tax relief, and personal tax planning, the following resources provide the strongest contextual support: