Good news for non-govt salaried employees: Income Tax exemption limit for leave encashment upon retirement hiked to Rs 25 lakh

The Ministry of Finance on Thursday announced an increase in the tax exemption limit for leave encashment upon retirement for private sector salaried employees to Rs 25 lakh. This is in line with Finance Minister Nirmala Sitharaman's Budget speech, where she announced that the tax exemption on leave encashment for non-government employees would be raised from Rs 3 lakh to Rs 25 lakh. The Rs 3-lakh limit had been fixed in 2002 when the highest basic pay in the government was Rs 30,000 per month.

With this announcement, the tax exemption on leave encashment of non-government salaried employees will rise for the period of earned leaves remaining at the time of their retirement in case of both superannuation and otherwise.  

The official communique stated that the increased limit for tax exemption on leave encashment on retirement or otherwise of non-government salaried employees to Rs 25 lakh has come into effect from April 1, 2023.

However, it has also been clarified that the aggregate amount exempt from income tax under the Act shall not exceed the Rs. 25 lakh limit. The limit particularly holds true for transactions done between a non-government employee from more than one employer in the same previous year. 

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