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INDIA UNION BUDGET 2023: tax exemption on leave encashment on the retirement of non-government salaried employees raised to Rs 25 lakh from Rs 3 lakh!
INDIA UNION BUDGET 2023: tax exemption on leave encashment on the retirement of non-government salaried employees raised to Rs 25 lakh from Rs 3 lakh!
Original publication: 2023-02-28 09:52:28
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Karma Management Global Consulting Solutions Pvt. Ltd. one of the top 5 consultancy firms, was established in the year 2004, with headquarters in the business district of Santacruz East, Mumbai, India, and full-scale operation in all the States having about 200 direct and indirect staff on its roll, is a leading service provider for payroll and payroll compliances, outsourcing, facility services, HR services, Training & Development, Recruitment & Talent Acquisition, Legal and Para legal services, Disputes and Litigation Handling, Inspection Management and Liaising, Advisory Services, Social, Environment and Vendor Audits, Regulatory Compliances, and Governance. Compliance with labour and employment laws have become one of the most important issues that many establishments in India have to deal with. Many employment disputes result in litigation and take a prolonged time for effective conclusions. Karma Global is an Indian HR, Payroll, and Compliance Firm advising clients worldwide on local, regional and global regulatory compliances in relation to their business goals, business strategies, and resolving disputes. It gives valuable suggestions and advice to Corporates, Investors, Institutions, Contractors, Establishments, Industries, etc. on the need for lowering employment risk across all levels and adhering to the laws of the land. It has a lot of expertise on employment-related compliance issues, as well as day-to-day support for Human Resource Services with in-house Counsels. Karma Global is also into employment agreements and policies, structuring of compensation and benefits, employment aspects of merger and takeover, etc. Karma Global’s force, strength, and reach have brought in tremendous change over from its earlier image of being a consultancy firm in the period of 2000 to now embarking on setting strategies and practices abroad in highly regulated markets and competing in the global arena. With India overtaking the UK to emerge as the fifth largest economy in the world and setting to become the third largest by 2029, Karma Global is all poised for long-term value in terms of client outreach and giving state-of-the-art technology and excellent services to global clients better than ever before.INDIA UNION BUDGET 2023: tax exemption on leave encashment on the retirement of non-government salaried employees raised to Rs 25 lakh from Rs 3 lakh!
What is leave encashment? Every salaried person, as per labour law, is entitled to a minimum number of paid leave every year. However, it is not necessary that an individual employee utilizes all the leave he is entitled to in a year. In fact, most employers allow employees an option of carrying forward such unutilized paid leaves. This would invariably leave the employee with an accumulated unutilized leave balance at the time of retirement or resignation from the company, as the case may be. This compels the employer to compensate the unutilized paid leave of the employees. This concept is better known as leave encashment. What are the types of leaves? The different types of leaves are mentioned in the leave policy of a company. The leave policies differ from company to company. Here are the types of leaves generally available for employees:- Casual leave:
- Earned leave or privilege:
- Medical leave: .
- Holiday leave:
- Maternity leave:
- Sabbaticals:
Taxation of Leave Encashment
Leave encashment received during service Leave encashment received by employees is taxable based on when it is received. If an employee gets leave encashment while on his job, that amount becomes fully taxable and forms part of ‘Income from Salary'. Leave encashed at the time of retirement or resignation Here are the following conditions under which you can claim partial or complete exemption of leave encashment received at the time of retirement:| Leave encashment received by | Taxability |
| State and Central Government employees | Fully tax-exempt |
| Non-government employees | Partly exempt and partly taxable. The exemption is based on the calculation specified in Section 10(10AA)(ii). |
| The legal heir of a deceased employee | Fully tax-exempt Leave encashment amount received by the Legal heir of a deceased employee is fully tax-exempt in the hands of the legal heirs |
Leave Encashment Exemption Illustration
Let us understand leave encashment exemption with the help of an illustration: *Proposed limit increase from 3 lakhs to 25 lakhs has been incorporated. Mr A is retiring after 15 years of service. Mr A was entitled to 35 days of paid leave per annum from his employer, i.e., overall 525 days of leave during his entire service. (35*15) Out of the same, Mr A has already utilised 200 days of paid leave and is left with 325 days of unutilised leave. Mr A was drawing basic salary + DA of Rs 33,000 per month at the time of retirement and received Rs 3,57,500 as leave encashment calculated based on 325 days * Rs. 1,100 (salary per day = Rs.33,000/30 days).Leave Encashment Calculation
The formula for computing leave encashment exemption of Non-government employees: [caption id="attachment_6664" align="alignnone" width="661"]
CONCLUSION - Sanjay Malhotra, Revenue Secretary’ statement ….![/caption]
- Sanjay Malhotra, the revenue secretary, stated that "the benefit of Rs 22 lakh at 30 percent plus, comes out to roughly Rs 7 lakhs." According to Malhotra, the exemptions add up to more than Rs 20,000 per year if they are spread out over 30-35 years.
- Malhotra estimates that the salaried class makes up 50 percent of personal income taxpayers. Therefore, whether people pick the new tax system now or the old today, the new leave encashment exemptions will help them when they retire.
- He said that government employees, including those employed by AIIMS, will also profit from the new "leave encashment" exemption
- Finance Minister Nirmala Sitharaman upped the rebate limit for paying income taxes to Rs 7 lakh/annum.
- The tax exemption limit has been increased to Rs 3 lakh.
- The new applicable tax rates hold zero taxes for those earning upto Rs. 3 lahks, 5% for Rs. 3-6 lakhs, 10% for Rs. 6-9 lakhs, 15% for Rs. 9-12 lakhs, 20% for Rs. 12-15 lakhs and 30% for Rs. 15 lahks and beyond.
- Railways accorded its highest-ever capital outlay: highest ever at Rs. 2.40 lakh crore.
- The agriculture credit target would be raised to Rs. 20 lakh crore with a focus on animal husbandry and fisheries.
- Setting up an Agriculture Accelerator Fund to encourage agri-startups by young entrepreneurs in rural areas.
- The agriculture credit target would be raised to Rs. 20 lakh crore with a focus on animal husbandry and fisheries.
- The budget provided Rs. 35,000 crores for priority capital investments towards achieving energy transition and net-zero objectives as well as energy security by the Ministry of Petroleum and Natural gas.