Encashment of leave: Tax exemption limit notified

In line with the Budget announcement, the finance ministry hiked the tax exemption limit for leave encashment upon retirement for private sector salaried employees to Rs 25 lakh.

So far, the tax exemption on leave encashment for non-government employees was Rs 3 lakh which was fixed in 2002, when the highest basic pay in the government was Rs 30,000 per month.

The Central Board of Direct Taxes (CBDT), in a statement, said the aggregate amount exempt from income tax under section 10(10AA)(ii) shall not exceed the limit of Rs 25 lakh, where any such payments are received by a non-government employee from more than one employer.

The increased limit for tax exemption on leave encashment on retirement or otherwise of non-government salaried employees to Rs 25 lakh with effect from April 1, 2023.