CBDT has issued Notification No. 31/2023-Income-Tax and Increased limit for tax exemption on leave encashment for non-government salaried employees
The Income-tax Act, 1961, previously allowed a tax exemption on leave encashment for non-government salaried employees. This exemption was applicable to the period of earned leave they had accrued at the time of retirement, whether through superannuation or otherwise. However, the maximum limit for this exemption was set at Rs. 3 lakh.
Following the proposal made by the honorable Finance Minister during the Budget Speech of 2023, the Central Government has now announced an increased limit for tax exemption on leave encashment. Effective from April 1, 2023, the new limit is set at Rs. 25 lakh for non-government salaried employees.
It’s important to note that if a non-government employee receives such payments from multiple employers 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.
Additionally, any tax exemption already allowed in the total income of the employee under section 10(10AA)(ii) of the Act in previous years should be subtracted from the Rs. 25 lakh limit.
This revision in the tax exemption limit aims to provide relief and flexibility to non-government salaried employees when it comes to leave encashment during retirement or other circumstances.
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
S.O. 2276(E).—In exercise of the powers conferred by sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government, having regard to the maximum amount receivable by its employees as cash equivalent of leave salary in respect of the period of earned leave at their credit at the time of their retirement, whether superannuation or otherwise, hereby specifies the amount of Rs. 25,00,000 (twenty-five lakhs rupees only) as the limit in relation to employees mentioned in that sub-clause who retire, whether on superannuation or otherwise.
2. This notification shall be deemed to have come into force with effect from the 1st day of April, 2023.
[Notification No. 31/2023/F. No. 200/3/2023-ITA-I]
SOURABH JAIN, Under Secy.
Explanatory Memorandum : It is hereby certified that no person is being adversely affected by giving retrospective effect to this notification.
How current employer knows whether employees have received any tax exemption from former employers of the employee.