I-T Exemption Limit For Leave Encashment Upon Retirement Raised To Rs 25 Lakh

The Central Board of Direct Taxes (CBDT) on Thursday notified the hike within the tax exemption restrict for go away encashment upon retirement for personal sector salaried staff to Rs 25 lakh according to the Funds 2023 announcement. 

In a press release, the earnings tax division stated that the mixture quantity exempt from earnings tax beneath part 10(10AA)(ii) shall not exceed the restrict of Rs 25 lakh, the place any such funds are acquired by a non-government worker from multiple employer.

Beforehand, non-government staff may obtain a tax exemption of as much as Rs 3 lakh on go away encashment. This restrict was set in 2002 when the very best fundamental pay within the authorities was Rs 30,000 monthly.

The brand new restrict will come into power with impact from April 1, 2023.

“In pursuance to the proposal within the Funds speech, 2023,… the central authorities has notified the elevated restrict for tax exemption on go away encashment on retirement or in any other case of non-government salaried staff to Rs 25 lakh w.e.f. 01.04.2023,” the CBDT stated.

Within the 2023-24 Funds, finance minister Nirmala Sitharaman elevated the tax exemption on go away encashment on the retirement of non-government salaried staff to Rs 25 lakh, from Rs 3 lakh. 

“The restrict of Rs.3 lakh for tax exemption on go away encashment on retirement of non-government salaried staff was final fastened within the 12 months 2002, when the very best fundamental pay within the authorities was Rs 30,000 monthly. In step with the rise in authorities salaries, I’m proposing to extend this restrict to Rs.25 lakh,” she had introduced. 

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What Is Go away Encashment 

Go away encashment refers back to the apply of receiving cost in trade for unused leaves or trip days that an worker has accrued however not utilised. When an worker resigns, retires, or leaves a job, they might be entitled to obtain a lump sum cost for the accrued, untaken leaves. 

Within the non-public sector, when an individual retires or resigns, the go away encashment they obtain is taken into account taxable as “Earnings from Wage.” Nonetheless, they’ve the choice to say an exemption beneath Part 10 (10AA)(ii) of the Earnings-tax Act.

Based on this provision, any cost acquired as go away encashment throughout retirement or upon leaving the job is eligible for exemption. The restrict is now proposed to be elevated to Rs 25 lakh from earlier Rs 3 lakh.

As per the Earnings-tax web site, “In case of non-Authorities staff (i.e., aside from the Central or the State Authorities staff), go away wage exempt from tax beneath part 10(10AA) (ii) might be least of the next:

1. Interval of earned go away in months (*) × Common month-to-month wage (**)
2. Common month-to-month wage (**) × 10 (i.e., 10 months’ common wage)
3. Most quantity as specified by the Central Authorities i.e., Rs. 3,00,000 Completely different quantities (i.e., ceiling limits) are specified by the Authorities for various years. Nonetheless, for workers retiring after April 1, 1998 specified ceiling restrict is Rs.3,00,000.
4. Go away encashment really acquired on the time of retirement.”

Common month-to-month wage

As per earnings tax division web site, “Common month-to-month wage means common wage drawn in previous ten months instantly previous the retirement (i.e., the day of retirement). Wage for this objective will embrace the next solely: Primary wage, Dearness allowance thought-about whereas computing retirement advantages (i.e. DA in phrases), and Fee based mostly on fastened share of turnover achieved by the worker.

Other than the above gadgets, wage for this objective doesn’t embrace every other allowance or perquisites.” 

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