The Government of India has made amendments to the tax exemption on leave encashment for non-government salaried employees under section 10(10AA)(ii) of the Income-tax Act, 1961. Previously, the tax exemption limit was set at Rs. 3 lakh. However, as proposed in the Budget Speech of 2023 by the honorable Finance Minister, the limit has been increased to Rs. 25 lakh.
The increased limit of Rs. 25 lakh for tax exemption on leave encashment will be applicable from April 1, 2023. It is important to note that if a non-government employee receives such payments from multiple employers in the same previous year, the aggregate amount exempt from income tax under section 10(10AA)(ii) should not exceed the limit of Rs. 25 lakh.
Additionally, if an employee has already availed tax exemption under section 10(10AA)(ii) in any previous year or years, the amount exempt from income tax in the current year should not exceed the limit of Rs. 25 lakh reduced by the previously allowed exemption.
The official notification regarding this amendment can be found in Notification No. 31/2023 dated May 24, 2023, which has been published and is available at https://egazette.nic.in.
