Leave encashment exemption for government employees

Earlier, As per section 10(10AA)(ii) of the Income Tax Act, 1961 (the Act), Exemption for leave encashment (in respect of the period of earned leave at his credit at the time of his retirement, whether on superannuation or otherwise) in case of non-government salaried employees was up-to a limit of INR 3 Lakh. CBDT through the Notification No. 31/2023 dated 24-05-2023 has increased exemption for leave encashment in case of non-government salaried employee from INR 3 lakh to INR 25 Lakh. This notification will be effective from 01-04-2023. Where any such payments are received by a non-government employee from more than one employer in the same previous year, then the aggregate exemption under section 10(10AA)(ii) of the Act shall not exceed the limit of INR 25 lakh. Further, the exemption under section 10(10AA)(ii) of the Act shall not exceed the limit of INR 25 lakh as reduced by the tax exemption already allowed under section 10(10AA)(ii) of the Act in any previous year or years. Last updated: 07/06/2023 Article contributed by: Uday Jangra Senior Executive – Direct Tax MBG Corporate Services

On 1 February 2023, the Finance Minister announced new leave encashment exemptions for non-government employees. The proposed amendment saw a big jump in theleave encashment limit, reaching up to Rs 25 lakh from the earlier limit of Rs 3 lakh. What is the leave encashment limit? A salaried employee is entitled to a minimum number of paid leaves annually. But it is not necessary that the individual employee uses all the entitled leaves. Most employers give employees the option to carry forward such unutilised paid leaves. Consequently, the employee accumulates an unused leave balance by the time of resignation or retirement from the company. This makes the employer compensate the employees’ paid leave balance. This concept is known as leave encashment. Leave encashment is taxable according to the law.Taxpayersmust include the amount under the head for ‘income from salary.’ However, individuals can claim an exemption under Section 10 (10AA) (ii) of the Income Tax Act 1961. Before the amendments announced in the This limit, known as theleave encashment limit, has now been incremented to Rs 25 lakh, in line with the increase in government salaries. Also Read: How to calculate the tax exemption on leave encashment? When ataxpayerreceives leave encashment on leaving a job or retirement, the payment shall be exempt up to the least of the following amounts under Section 10 (10AA) (ii). • Average monthly salary for ten months. • Average monthly salary x period of earned leave in mo...

Salaried employees are usually entitled to two types of leave-related benefits — Leave Encashment and Leave Travel Allowance (LTA). While leave encashment is given against unutilised leaves during employment or on retirement, LTA is provided to cover for the expenses incurred by the employee for personal outstation travel. Let’s take a look at the taxation of both of these employee benefits separately. Leave encashment Leave encashment received at the time of retirement/resignation is fully exempt for government employees. However, if received during the tenure of service it is fully taxable for both government and private sector employees. In case of leave encashment received by private sector employees at the time of retirement/ superannuation, exemption is allowed to the extent of the least of the following: Your queries: Income Tax; Working abroad? Can’t claim HRA for family back home i. Salary per day multiplied by unutilised leave (considering maximum 30 days leave per year) for every year of completed service. ii. Average salary for the last 10 months iii. Actual amount received iv. Rs 3 lakh “Average salary means the average of last 10 months salary wherein salary would constitute basic salary, dearness allowance and commission based on a fixed percentage of turnover secured by an employee,” says Suresh Surana, founder, RSM India. “Leave encashment received from two or more employers during the financial year would be subject to the limit of Rs 3 lakh.” Also Read: ...

June 7, 2023 Posted by Written by Reading Time: 4 minutes India has increased the tax exemption limit on leave encashment for employees in non-government sectors, that is, private sector organizations. The new tax-exempt limit is INR 2.5 million, which reflects the higher average earnings. Organizations should note the changes to their payroll as the new tax rule will be retrospectively implemented from April 1, 2023. India’s federal government recently issued a notification announcing an increased limit for tax exemption on earned leave encashment for non-government (private sector) salaried employees, in line with the budget proposal for the financial year (FY) 2023-24. Finance Minister Nirmala Sitharaman highlighted the need to update the existing limit of INR 300,000, which was set in 2002 and is no longer in line with current salary scales. The proposed limit has been raised to INR 2.5 million (approximately US$30,306), and it will be applicable retrospectively from April 1, 2023. (US$1 = INR 82.49.) The government has assured that the retrospective implementation of this notification will not have any adverse impact on individuals. FAQs on India’s updated leave encashment policy What is the process of leave encashment as per India’s labor laws? Under the labor laws, leave encashment involves the employer compensating employees for their accumulated unutilized paid leave balance. Salaried individuals are entitled to a minimum number of paid leaves annually. If employe...

In accordance with Indian labour laws, each employee is entitled to a certain number of paid holidays annually, which are among the benefits offered by their employer. If an employee does not utilize all of their entitled leave, they have the option to receive payment for the unused days, which is known as leave encashment. Leave encashment is an important part of your employment contract, so it's important to understand what you need to know. Knowing how leave encashment works will help you plan for your time off and ensure that you're taking full advantage of the benefits you've earned. In this article, we'll discuss what leave encashment is, how it works and when it can be used. What is Leave Encashment? Leave encashment refers to the process of an employee receiving payment in exchange for their unused paid leave days, such as vacation or sick leave, that are entitled to them by their employer. In other words, instead of taking time off from work, an employee can choose to receive compensation for the equivalent number of leave days they have accumulated but not used. The terms of leave encashment, including the maximum number of days that can be encashed, are usually determined by the employer's policies or local labour laws. What is the Limit of Leave Encashment Exemption in Budget 2023? The Indian government has recently increased the The previous limit of Rs. 3 lakh was set in 2002 when the highest basic pay in the government was Rs. 30,000 per month. Sitharaman's ...

Salaried taxpayers constantly juggle between their income and tax savings. They work out ways through which their taxable income goes down, and their net income in their hands go up. They look for avenues such as tax deductions, allowances, and exemptions to realize their objective to reduce their tax outgo. The tax authorities on their part allow employers to structure the salaries of their salaried employees in a manner that they are tax-efficient and help them save tax through several allowances that are included in their income. And also provides multiple income tax exemptions or deductions for salaried employees to reduce tax liability. These tax savings are beyond the widely popular Let us examine some options through which salaried taxpayers can reduce their tax outgo. Read: 1. House Rent Allowance For salaried taxpayers, a) HRA received from an employer b) Actual rent paid less 10% of basic monthly salary c) 50% of basic salary if the taxpayer is living in a metro city d) 40% of basic salary if the taxpayer is living in a non-metro city As the lowest of the above is exempt from tax, it is common for employers and employees to structure the salary in a manner to avail the maximum tax exemption under this head. You can use Factors affecting HRA calculation a) Actual HRA received is (Rs 15,000 x 12) = Rs 1,80,000 b) Actual rent paid (Rs 10,000 x 12) – 10% of salary [(Rs 30,000 x 12) x 10%] = Rs 84,000 c) Actual rent paid (Rs 20,000 x 12) – 10% of salary [(Rs 30,000 x ...

Tax-Free Leave Encashment: In the Union Budget 2023-24 a new benefit for retired salaried employees rises. A new tax-free limit for leave encashment now allows people to claim up to ₹25 lakhs in the exemption, which has increased from the previous limit of ₹3 lakhs. Read further to know more. CBDT issues Notification No.31/2023 dt 24.05.2023 increasing limit for tax exemption on leave encashment for non-government salaried employees to Rs.25 lakh w.e.f. 01.04.2023. For more details, please see the Press Release: What is Tax-Free Leave Encashment? Leave encashment that is received after retirement or resignation is considered taxable income under the "Income from Salary" category. However, employees can easily claim an exemption from this tax under Section 10 (10AA) of the Income-Tax Act. The government allows many benefits to employees, including tax-free leave encashment. This policy allows salaried employees to encash their leaves at the time of their retirement or resignation without paying any income tax on the amount they are encashing. The amount that can be encashed tax-free is capped at a certain limit. The previous Tax-Free Limit for Leave Encashment was set at ₹3 Lakhs per person. According to the Income Tax Act “As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is exempt from tax. In the hands of non-Government employee exemption will be least of the following: • Period of earned...

Salaried taxpayers constantly juggle between their income and tax savings. They work out ways through which their taxable income goes down, and their net income in their hands go up. They look for avenues such as tax deductions, allowances, and exemptions to realize their objective to reduce their tax outgo. The tax authorities on their part allow employers to structure the salaries of their salaried employees in a manner that they are tax-efficient and help them save tax through several allowances that are included in their income. And also provides multiple income tax exemptions or deductions for salaried employees to reduce tax liability. These tax savings are beyond the widely popular Let us examine some options through which salaried taxpayers can reduce their tax outgo. Read: 1. House Rent Allowance For salaried taxpayers, a) HRA received from an employer b) Actual rent paid less 10% of basic monthly salary c) 50% of basic salary if the taxpayer is living in a metro city d) 40% of basic salary if the taxpayer is living in a non-metro city As the lowest of the above is exempt from tax, it is common for employers and employees to structure the salary in a manner to avail the maximum tax exemption under this head. You can use Factors affecting HRA calculation a) Actual HRA received is (Rs 15,000 x 12) = Rs 1,80,000 b) Actual rent paid (Rs 10,000 x 12) – 10% of salary [(Rs 30,000 x 12) x 10%] = Rs 84,000 c) Actual rent paid (Rs 20,000 x 12) – 10% of salary [(Rs 30,000 x ...

Tax-Free Leave Encashment: In the Union Budget 2023-24 a new benefit for retired salaried employees rises. A new tax-free limit for leave encashment now allows people to claim up to ₹25 lakhs in the exemption, which has increased from the previous limit of ₹3 lakhs. Read further to know more. CBDT issues Notification No.31/2023 dt 24.05.2023 increasing limit for tax exemption on leave encashment for non-government salaried employees to Rs.25 lakh w.e.f. 01.04.2023. For more details, please see the Press Release: What is Tax-Free Leave Encashment? Leave encashment that is received after retirement or resignation is considered taxable income under the "Income from Salary" category. However, employees can easily claim an exemption from this tax under Section 10 (10AA) of the Income-Tax Act. The government allows many benefits to employees, including tax-free leave encashment. This policy allows salaried employees to encash their leaves at the time of their retirement or resignation without paying any income tax on the amount they are encashing. The amount that can be encashed tax-free is capped at a certain limit. The previous Tax-Free Limit for Leave Encashment was set at ₹3 Lakhs per person. According to the Income Tax Act “As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is exempt from tax. In the hands of non-Government employee exemption will be least of the following: • Period of earned...

In accordance with Indian labour laws, each employee is entitled to a certain number of paid holidays annually, which are among the benefits offered by their employer. If an employee does not utilize all of their entitled leave, they have the option to receive payment for the unused days, which is known as leave encashment. Leave encashment is an important part of your employment contract, so it's important to understand what you need to know. Knowing how leave encashment works will help you plan for your time off and ensure that you're taking full advantage of the benefits you've earned. In this article, we'll discuss what leave encashment is, how it works and when it can be used. What is Leave Encashment? Leave encashment refers to the process of an employee receiving payment in exchange for their unused paid leave days, such as vacation or sick leave, that are entitled to them by their employer. In other words, instead of taking time off from work, an employee can choose to receive compensation for the equivalent number of leave days they have accumulated but not used. The terms of leave encashment, including the maximum number of days that can be encashed, are usually determined by the employer's policies or local labour laws. What is the Limit of Leave Encashment Exemption in Budget 2023? The Indian government has recently increased the The previous limit of Rs. 3 lakh was set in 2002 when the highest basic pay in the government was Rs. 30,000 per month. Sitharaman's ...