Introduction
The tax exemption on leave encashment for non-government salaried employees has undergone a significant change. Previously, the exemption was limited to Rs. 3 lacks under section 10(10AA)(ii) of the Income-tax Act, 1961. However, as per the proposal in the Budget Speech of 2023, the Central Government has now increased the limit for tax exemption on leave encashment to Rs. 25 lacks. This increased limit is effective from April 1, 2023. The purpose of this change is to provide relief to non-government salaried employees and reduce their tax burden during retirement or other circumstances. Let’s delve deeper into the details of this notification and understand its implications.
Increased Limit for Tax Exemption on Leave Encashment
The Central Government, in line with the Budget Speech proposal, has notified the increased limit for tax exemption on leave encashment for non-government salaried employees. The previous limit of Rs. 3 lakh has been raised to Rs. 25 lakh. This change aims to benefit employees by allowing a higher tax exemption on the amount received as leave encashment. The increased limit will be applicable from April 1, 2023, onwards.
Aggregate Amount Exempt from Income-Tax
Under section 10(10AA)(ii) of the Income-tax Act, the aggregate amount exempt from income tax should not exceed the limit of Rs. 25 lahks. This provision becomes crucial when a non-government employee receives leave encashment payments from multiple employers in the same previous year. In such cases, the total amount exempt from income tax cannot exceed the specified limit.
Reduction of Exemption by Previous Year’s Allowance
Another important aspect to consider is that the amount exempt from income tax under section 10(10AA)(ii) of the Act should not exceed the limit of Rs. 25 lahks after reducing the tax exemption already allowed in the employee’s total income in any previous year or years. This provision prevents the total exemption from exceeding the set limit by taking into account any previous tax exemptions granted for leave encashment.
Notification No. 31/2023
To ensure widespread awareness and implementation of the increased limit for tax exemption on leave encashment, the Central Government has published Notification No. 31/2023. This notification, dated May 24, 2023, provides detailed information about the change and its effective date. Non-government salaried employees can refer to this notification for a comprehensive understanding of the new tax exemption limit.
Frequently Asked Questions
- What was the previous tax exemption limit for leave encashment for non-government salaried employees? The previous tax exemption limit for leave encashment was Rs. 3 lakh.
- When does the increased limit for tax exemption on leave encashment come into effect? The increased limit of Rs. 25 lacks tax exemption on leave encashment effective from April 1, 2023.
- Does the increased limit apply to all non-government salaried employees? Yes, the increased limit applies to all non-government salaried employees who receive leave encashment payments.
- What happens if a non-government employee receives leave encashment payments from multiple employers in the same previous year? In such cases, the total amount exempt from income tax cannot exceed Rs. 25 lacks.
- Is the exemption reduced by the previous year’s tax allowances?
- Yes, the amount exempt from income tax under section 10(10AA)(ii) cannot exceed Rs. 25 lacks after reducing the tax exemption already allowed in the employee’s total income in any previous year or years.
- Where can I find the official notification regarding the increased tax exemption limit? The official notification, No. 31/2023, dated May 24, 2023, has been published and can be accessed at https://egazette.nic.in.
Conclusion
The increased limit for tax exemption on leave encashment for non-government salaried employees is a significant development that aims to alleviate the tax burden on individuals during retirement or other circumstances. With the new limit set at Rs. 25 lahks, employees can enjoy a higher tax exemption on their leave encashment amount. It is important for employees to be aware of the provisions related to aggregate amounts, multiple employers, and reductions based on the previous year’s allowances. By adhering to these guidelines, individuals can take full advantage of the increased tax exemption and effectively plan their financial future.
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