The changed tax treatment, which will be effective from April 1, 2023, could benefit 50% of personal income tax payers, who are salaried workers, as per Revenue Department estimates.

Union Finance Minister Nirmala Sitharaman had noted during her Budget 2023-24 speech that the limit of ₹3 lakh for tax exemption on leave encashment on the retirement of non-government salaried employees was last fixed in the year 2002 when the highest basic pay in the government was ₹30,000 per month. “In line with the increase in government salaries, I am proposing to increase this limit to ₹25 lakh,” she had said.

Revenue Secretary Sanjay Malhotra had told The Hindu that this tax exemption hike would effectively translate into potential savings of ₹7 lakh in taxes that would have been payable before this amendment.

“That is almost ₹20,000 of savings a year over a 33-year working life,” he had pointed out. Employees who switch to the new exemption-free income tax regime in the year of their retirement will also benefit from this change, Mr. Malhotra said.