Leave Encashment Limit: The government has given a big tax exemption to the salaried class working in the private sector. The Finance Ministry has increased the tax exemption limit on Leave Encashment Limit to Rs 25 lakh.
Till now this limit was 3 lakh rupees. With this decision, employees retiring or changing jobs will get the benefit of tax exemption on cash received in lieu of holidays. In the Budget 2023, the Finance Ministry had proposed to increase the leave-in cashment tax exemption up to Rs 25 lakh, which has been implemented by the Finance Ministry from 1 April 2023.
In this regard, in the circular issued on May 24, 2023, it has been said that the limit of income tax exemption on leave encashment is increased to Rs 25 lakh. This exemption has also been implemented on leaving more than one job in a year.
What is leave encashment and how will it be calculated?
When an employee saves his leave, the amount he gets in lieu of leave on retirement or after leaving the job is called leave encashment. Now the government will not charge tax on the amount received under leave-in encashment up to Rs 25 lakh. Till now only the amount of Rs 3 lakh was under the ambit of exemption.
- Understand by example, if the amount given to you in lieu of the remaining holidays during retirement is Rs 26 lakh, then you will have to pay income tax on Rs 1 lakh.
- At the same time, even if you change jobs several times in a year, you will get the benefit of exemption. For example, if you left the job in March in a company named A and from here you got 22 lakh rupees under leave encashment. After this, after a few months job in a company named B, he resigned in February and from here he got Rs. In this case, you will have to pay income tax on Rs 1 lakh, while Rs 25 lakh will be exempt from tax.
Leave encashment tax limit was fixed 21 years ago
Finance Minister Nirmala Sitharaman had said in her budget speech that the limit of Rs 3 lakh was fixed in the year 2002 for tax exemption on leave encashment on retirement of private sector salaried employees. At that time the highest government basic pay in the country was Rs.30,000/- per month. I am proposing to increase this limit to Rs 25 lakh in line with the increase in government salary. Now this proposal has been implemented from 1 April 2023.