The Central Board of Direct Taxes (CBDT) has recently issued Notification No. 31/2023-Income-Tax, announcing an amendment to the maximum amount receivable by employees as the cash equivalent of leave salary at the time of their retirement. This amendment, effective from April 1, 2023, raises the limit and brings clarity to the relevant sub-clause of the Income-tax Act.

Details of the Notification:

The CBDT, in exercise of its powers conferred by sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act, 1961, has specified a new maximum limit for the cash equivalent of leave salary. The notification states that employees, whether retiring due to superannuation or otherwise, can now receive a maximum amount of Rs. 25,00,000 (twenty-five lakhs rupees only) in respect of the period of earned leave at their credit.

Effective Date:

The notification, numbered S.O. 2276(E) and dated 24th May 2023, has been deemed to come into force with effect from the 1st day of April, 2023.

Implications and Benefits:

1. Increased Limit: 

The revised maximum limit of Rs. 25,00,000 provides a higher cap for employees' cash equivalent of leave salary. This enables retiring employees to receive a larger sum, thereby enhancing their financial security during retirement.

2. Clarity and Compliance: 

The amendment brings clarity to the provisions of the Income-tax Act, ensuring that employees mentioned in the relevant sub-clause are aware of the maximum amount they can receive as cash equivalent of leave salary. This promotes compliance and avoids any ambiguity or disputes in determining the eligible amount.

3. Retirement Planning: 

The higher limit allows employees to plan their retirement finances more effectively. They can consider the cash equivalent of leave salary as part of their retirement corpus and make informed decisions regarding investments, savings, and post-retirement expenses.

The CBDT's issuance of Notification No. 31/2023-Income-Tax signifies an important amendment to the cash equivalent of leave salary for retiring employees. With the increased maximum limit of Rs. 25,00,000, individuals retiring due to superannuation or otherwise can now receive a higher sum as part of their earned leave benefits. This move by the CBDT provides employees with greater financial security during their retirement years and brings clarity to the relevant provisions of the Income-tax Act.