Tax Secretary Sanjay Malhotra in New Delhi. File | Photo credit: ANI

The government has notified an increase in the tax exemption limit for leave cash benefits received by employees upon retirement from ₹3 lakh to ₹25 lakh as promised in the Union Budget.

The changed tax treatment, which will come into effect on April 1, 2023, could benefit 50% of personal income tax payers who are salaried workers, according to tax estimates.

Union Finance Minister Nirmala Sitharaman had noted during her 2023-24 budget speech that the ₹3 lakh limit for tax exemption on cashing in of retirement leave for non-government employees had was last set in 2002, when the highest basic government salary was ₹30,000 per month. “In line with the government salary increase, I propose to raise this limit to ₹25 lakh,” she had said.

Revenue Secretary Sanjay Malhotra had said The Hindu that this increase in tax exemption would effectively result in a potential savings of ₹7 lakh in taxes that would have been payable before this amendment.

“That’s almost ₹20,000 in savings per year over a working life of 33 years,” he had pointed out. Employees who switch to the new income tax regime without exemption within a year of retirement will also benefit from the change, Malhotra said.