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Personal Finance News

Budget 2025 for government employees: Experts suggest way to make gratuity, leave encashment tax-free for all

rajeev kumar
By Rajeev Kumar

2 min read | Updated on January 21, 2025, 18:50 IST

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SUMMARY

Budget 2025 exepectations: Central and state government employees are allowed tax exemptions under various provisions of Section 10. However, exemptions are not uniformly available to employees of government-aided institutions whose salaries are funded predominantly by the central or state governments, according to Taxmann.

government employees tax in budget 2025

Central and state government employees are allowed tax exemptions under various provisions of Section 10. Representational image

Budget 2025 expectations: Ahead of Budget 2025-26, the Union Cabinet has accepted the long-pending demand of central government employees to set up the 8th pay commission for revising their salaries and allowances.

There are several other demands of government employees that the government is expected to look into in Budget 2025.

Meanwhile, experts at Taxmann have recommended that the upcoming budget should explicitly define the term government employee in the Income-tax Act. This provision will ensure uniform tax exemptions on benefits like gratuity and leave salary encashment for all employees working in government-funded bodies.
“A disparity exists in the tax treatments and exemptions available under various provisions to a government employee vis-à-vis an employee of a government-aided institution who receives benefits akin to those of a government employee,” Taxmann said in their pre-budget recommendations to the government.

Tax exemptions available to government employees

Central and state government employees are allowed tax exemptions under various provisions of Section 10. According to Taxmann, these benefits are the following:

Section 10(10): Exemption for death-cum-retirement gratuity received by employees of the central government, state governments, local authorities, and members of the defence services.
Section 10(10A): Exemption for lump sum amounts received upon commutation of pension by the employees of the central government, state governments, local authorities, corporation established by a central, state, or provincial rule, and defence services.
Section 10(10AA): Exemption for leave salary encashment by the employees of central and state governments. This is, however, not allowed for employees of local authorities or corporations established under central, state, or provincial acts.
Also read | Budget 2025 for non-residents: Experts recommend when ITR filing should not be mandatory

Exemptions not available to all government-funded bodies

The exemptions are not uniformly available to employees of government-aided institutions whose salaries are funded predominantly by the central or state governments, according to Taxmann.

“It is recommended that a uniform exemption should be available for the gratuity, commutation of pension, and leave salary to the employees of the Central Government, State Government, local authorities, corporations, government-aided institutions, and PSU,” the experts said.

About The Author

rajeev kumar
Rajeev Kumar is a Deputy Editor at Upstox, and covers personal finance stories. In over 11 years as a journalist, he has written over 2,000 articles on topics like income tax, mutual funds, credit cards, insurance, investing, savings, and pension. He has previously worked with organisations like 1% Club, The Financial Express, Zee Business and Hindustan Times.

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