Leave encashment limit for non-govt employees hiked to Rs 25 lakh: CBDT

The Central Board of Direct Taxes (CBDT) on Wednesday notified to increase the leave salary encashment limit of non-government employees to Rs 25 lakh, Ministry of Finance said in a statement.

The CBDT circular dated May 24 stated that the increased leave encashment limit will be applicable from April 1, 2023.

The notice further said, "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. 2500,000 as the limit in relation to employees mentioned in that sub-clause who retire, whether on superannuation or otherwise."

According to media reports, 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.

In the statement, CBDT also said, "In pursuance to the proposal in the Budget speech, 2023,... the central government has notified the increased limit for tax exemption on leave encashment on retirement or otherwise of non-government salaried employees to Rs 25 lakh w.e.f. 01.04.2023."

The CBDT notification aims to implement the proposal made by Finance Minister Nirmala Sitharaman in Budget 2023, during which she promised to increase the income tax exemption limit on earned leave encashment to Rs 25 lakh from Rs 3 lakh.
 

For the benefit of middle-class taxpayers and senior citizens, Finance Minister also proposed a slew of other Budget proposals apart from the leave encashment. Under this year's Budget, the government also increased the tax rebate limit under the New Tax Regime to Rs 7 lakh, making income up to this limit tax-free for those who opt for the New Regime. In the case of salaried employees, no tax needs to be paid due to Rs 50,000 standard deduction on salary allowed in the New Tax Regime.