Now you can avail tax exemption of up to Rs 25 Lakh on vacation cashing
Budget 2023: Finance Minister Nirmala Sitharaman has proposed to increase the tax exemption limit on the cashing of retirement leave for non-government salaried employees from Rs 3 lakh to Rs 25 lakh.
The 2023 budget proposed to increase the tax exemption limit on the cashing in of retirement leave for non-government salaried employees from Rs 3 lakh to Rs 25 lakh.
“The limit of Rs 3 lakh for tax exemption on cashing in retirement leave for non-government employees was last set in 2002, when the highest base salary in government was Rs 30,000 pm. In line with the increase in government salaries, I propose to raise this limit to Rs 25 lakh,” Sitharaman said in his 2023 budget speech.
The annex published after the announcement of the Union budget stipulates that the cashing out of accrued leave up to 10 months of average salary, at the time of retirement in the case of an employee (other than an employee of the central or state government), is exempt under sub-clause (ii) of clause (10AA) of section 10 of the Income Tax Act (the “Act” ) to the extent notified.
As announced by Finance Minister Sitharaman, the maximum amount that can be exempted will be extended to Rs 25 lakh from April 1, 2023.
Leave cash is the amount an employee receives in exchange for a period of leave they did not take. It should be noted that this is calculated on the basis of the basic salary of the employees.
“The vacation cash-out exemption is likely to be a significant boon, especially in the corporate and startup sectors,” says Shreya Gupta, publicist at Four Founders PR.
The leave cashing proposal was among five major announcements made by FM Sitharaman in her speech for the 2023 budget, which she considered a budget for India’s middle class.
Among other important measures, the government has introduced a series of changes in the “new income tax slab” to reduce the tax liabilities of middle-class individuals. The tax refund under the new scheme has been extended on income up to Rs 7 lakh as per Section 87A, up from Rs 5 lakh. The top surcharge rate has been reduced to 25% from 37% in the new slab, FM said.