CBDT Increases Income Tax Exemption Limit On Leave Encashment For Non-Government Salaried Employees

The Central Board of Direct Taxes (CBDT) has increased the income tax exemption limit on leave encashment for non-government salaried employees.

The notification was released by the Board in accordance with the 2023–24 Budget. The tax exemption on leave encashment upon retirement for salaried non-government workers was raised by Finance Minister Nirmala Sitharaman from Rs 3 lakh to Rs 25 lakh.

“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,” the notification read.

The sum that an employer pays its employees in exchange for unused leaves is known as leave encashment. Employees have two options for using their accumulated leave balance: either during their employment or as a complete and final settlement upon retirement or resignation.

Notification No. 31/2023

Date: 24.05.2023

Click Here To Read The Notification