Exemption of Income Tax on Leave Encashment: A Guide for Non-Government Salaried Employees
If you are a non-government salaried employee who has recently retired or is planning to retire soon, you may be interested in the tax exemption on leave encashment. This tax benefit is available to all non-government salaried employees who have accumulated unused leaves at the time of their retirement. The amount received from leave encashment is treated as a tax-free retirement benefit in India.
The current limit for tax exemption on leave encashment on the retirement of non-government salaried employees is INR 3 lakh. This limit was last fixed in 2002 when the highest basic pay in the government was INR 30,000 per month. Since then, government salaries have increased significantly, and it is time to review the limit for tax exemption on leave encashment.
In line with the increase in government salaries, it is proposed to increase the limit for tax exemption on leave encashment to INR 25 lakh. This means that non-government salaried employees who receive more than INR 25 lakh from leave encashment on their retirement will be eligible for tax exemption up to INR 25 lakh. The balance amount received from leave encashment will be taxed as per the prevailing income tax rates.
To avail of the tax exemption on leave encashment, non-government salaried employees need to ensure that their employer has calculated and paid the necessary taxes and deductions on the leave encashment amount In excess of Rs 2500000/-
In conclusion, leave encashment is a valuable retirement benefit for non-government salaried employees. With the proposed increase in the limit for tax exemption on leave encashment, non-government salaried employees can now receive a larger tax-free amount on their retirement. If you are a non-government salaried employee who is retiring soon, make sure you understand the tax implications of leave encashment and plan your finances accordingly.