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Leave encashment: Central government’s gift to private employees, leave encashment tax free up to 25 lakhs

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Leave Encashment Exemption: If you too are thinking of retiring or changing jobs, then the government has given you a big gift. Till now private sector employees were being given a rebate of up to Rs 3 lakh on leave encashment. But now the government has increased it to 25 lakhs.

The employee will get the benefit of this tax benefit when he changes the job or retires. On the other hand, if you are taking cash in lieu of leave during employment, then this leave encashment will be taxed as before.

What is Leave Encashment?

If you save for your vacation while working, you get paid in return for retirement. This is called leave encashment. 25 lakh limit is also applicable for more than one job

You can avail tax exemption of up to Rs 25 lakh within a year. Think of it this way- Suppose you change your job in May, from where you get Rs 23 lakh as leave encashment. After this you move to another company and resign from that company in January, then you get Rs 3 lakh as leave encashment.

In this way, your total leave encashment is 26 lakhs, out of which you will get tax exemption on 25 lakhs. You will have to pay tax on the remaining Rs 1 lakh.

The announcement was made in the 2023 budget

India’s Finance Minister Nirmala Sitharaman presented the budget on 1 February this year. In this budget, he proposed to increase the tax exemption on leave encashment for private sector employees from Rs 3 lakh to Rs 25 lakh.