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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.

Limit for Leave Salary

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)
New Delhi

Notification No. 31/2023-Income-Tax | Dated : 24th May, 2023

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.

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10 Comments

  1. Gohad M D says:

    Sir
    The CBDT Notification does not specifically refer that the exemption limit of Rs 25 lakhs is also available to PSU BANKS/NON GOVT EMPLOYEES. pLEASE CLARIFY.
    tHANKS AND REGARDS

  2. PRAVEEN MALAPPA KAMATH says:

    Dear Sir
    Based on the notification part enclosed herewith clarifies that exemption on Encashment of Leave can be given retrospective effect, hence person retired before 31stMarch, 23 also is eligible for this tax exemption. Is this true ? Kindly calrify

    [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.

  3. Manubhai Parmar says:

    sir,
    I am retired on 31/03/2023 from PSU bank
    leave encashment credited on 3/4/2023 and TDS RS.237000/-deducted on 24/4/23.
    I am eligible for 25 lac leave exemptions?
    please guide me

  4. Y S MAHAPATRA says:

    HONOURABLE SIR,
    Leave encashment benefits received by the salaried class at retirement, whose limit has been hiked from ₹3 lakh to ₹25 lakh in the Budget, will be tax-free in their hands under the new income tax regime even if they switch to it in the year of retirement, Revenue Secretary Sanjay Malhotra told. IS THIS FACILITIES ARE AVAILABLE ON ACCURAL BASIS OR PAYMENT BASIS, SUPPOSE A PERSON HAS BEEN RETAIRED FROM PSU SERVICE ON 31.10.2022 BUT HIS FINAL SETTLEMENT WAS DONE ON 31.05.2023. MY QUESTION IS CAN HE AVAIL THE BENEFIT OF TAX EXEMPTION LIMIT RS.2500000 ON LEAVE ENCASHMENT ? THOUGH HE HAS RETAIRED FROM SERVICES ON 31.10.2022
    REGARDS
    Y.S.MAHAPATRA

    1. Amarjit Singh says:

      I received leave encashment to the tune of 1 lakh during the FY2022-23. Am I eligible for exemption us 10 (10AA) for the same while filing my ITR for FY2022-23 which is AY2023-24

  5. C N CHIPLUNKAR says:

    I retired in oct 2021 and received dues in august 2022 after rebate of Rs 3lac on earned leave. Am I eligible to get to get EL encashment exemption Rs. 25lac post facto?

  6. Surinder St Sathor says:

    I am retired on 31.03.2021 . At that time leave encashment exemption limit was Rs. 3.00 lacs. please guide me whether I am eligible for existing exemption limit of Rs. 25 lacs or not.

  7. Venkateswarlu Kethepalli says:

    How current employer knows whether employees have received any tax exemption from former employers of the employee.

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