Leave encashment up to Rs 25 lakh tax free
Taxation on leave encashment, compensation against unutilised paid leaves, depends on the time when it is received. Usually, if it is availed while on job, the mount received is taxable.
NEW DELHI: The government has notified an increase in the tax exemption limit for leave encashment benefits received by non-government employees at the time of retirement from Rs 3 lakh to Rs 25 lakh, as promised in the Union Budget.
This comes into effect from April 1. “The aggregate amount exempt under section 10(10AA)(ii) of the (Income tax) act 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 in the same previous year,” the I-T department notification said.
Taxation on leave encashment, compensation against unutilised paid leaves, depends on the time when it is received. Usually, if it is availed while on job, the mount received is taxable. However, if availed on retirement, it is fully exempt for central and state government employees and partially exempted for non-government employees up to a limit of Rs 25 lakh.
In her budget speech, Finance Minister Nirmala Sitharaman in February this year proposed the increase in the tax exemption on leave encashment on retirement. “The limit of Rs 3 lakh for tax exemption on leave encashment on the retirement of non-government salaried employees was last fixed in 2002, when the highest basic pay in the government was Rs 30,000 per month. In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh,” she said in her budget speech.
FM proposed increase in tax exemption in Budget
In her budget speech, Finance Minister Nirmala Sitharaman in February this year proposed the increase in the tax exemption on leave encashment on retirement
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