Enhanced Leave Encashment Exemption Limit Applies Retroactively Granting Full Exemption to Assessee

By | October 21, 2026
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Enhanced Leave Encashment Exemption Limit Applies Retroactively Granting Full Exemption to Assessee

Issue

Whether the enhanced monetary limit of ₹25,00,000 for leave encashment exemption introduced via CBDT Notification No. 31/2023 (dated 24.05.2023) applies to Assessment Year 2021–22, thereby entitling the retired non-government employee to full exemption under Section 10(10AA) of the Income-tax Act, 1961.

Facts

  • Assessee Profile & Receipt: The assessee, a retired employee, received an amount of ₹9,04,669 towards leave encashment upon retirement.
  • Exemption Claim: The assessee claimed the entire received amount of ₹9,04,669 as exempt from tax under Section 10(10AA) for Assessment Year 2021–22.
  • AO Restriction: The Assessing Officer (AO) restricted the statutory exemption limit to ₹3,00,000 as per the prevailing older notification under Section 10(10AA)(ii) and added the remaining balance to taxable income.
  • Relevant Notification: CBDT issued Notification No. 31/2023 dated May 24, 2023, raising the maximum exemption limit for leave encashment from ₹3,00,000 to ₹25,00,000.

Decision

  • Retroactive Benefit Allowed: The Tribunal/Court held that the enhanced threshold of ₹25,00,000 specified in CBDT Notification No. 31/2023 is applicable to the benefit of the assessee for Assessment Year 2021–22.
  • Complete Exemption Granted: Since the total leave encashment received (₹9,04,669) fell well within the newly enhanced limit of ₹25,00,000, the entire amount received by the assessee was declared fully exempt under Section 10(10AA).
  • Ruling in Favor: The issue was decided entirely in favor of the assessee [Paras 14 & 15].

Key Takeaways

  • Applicability of Enhanced Limits: Beneficial CBDT notifications increasing statutory exemption caps under Section 10(10AA)(ii) can be applied to pending assessments/appeals for prior years.
  • Full Relief for Non-Government Retirees: Non-government retirees receiving leave encashment payouts below ₹25,00,000 are entitled to claim full exemption without being restricted by the earlier ₹3,00,000 ceiling.
  • Corresponding Provision in Income-tax Act, 2025: The statutory framework governing leave encashment exemptions previously contained under Section 10(10AA) of the Income-tax Act, 1961 corresponds to Section 11 under the Income-tax Act, 2025.
IN THE ITAT JAIPUR BENCH ‘B’
Renu Moongia
v.
Income-tax Officer
Kuldip Singh, Judicial Member
and Prakash, Accountant Member
IT Appeal No. 1196 (JPR) of 2026
[Assessment year 2021-22]
SEPTEMBER  28, 2026
Smt. Renu Moongia and Om Parkash Mongia for the Appellant. Smt. Anita Rinesh, Addl. CIT for the Respondent.
ORDER
Kuldip Singh, Judicial Member.- The Appellant, Renu Moongia (hereinafter referred to as the ‘assessee’) by filing the present appeal, sought to set aside the impugned order dated 02.08.2022 passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] qua assessment year 2021-22 on the grounds inter-alia that:-
“Impugned order passed by Ld. CIT(A) is bad in law and fact as well as against the CBDT notification number 31/2023, revising the limit u/s 10(10AA) to Rs. 25,00,000/-, as such liable to be set aside.”
2. The assessee was moving an application sought to file the revised ground in the interest of justice, revised ground is allowed to be taken on record.
3. Briefly stated, facts necessary for consideration and adjudication of the issues at hand are: Assessee has superannuated from Life Insurance Corporation of India on 30.06.2020 and along with other retiral benefits also received leave encashment to the tune of Rs. 9,04,669/-. The assessee filed return of income claiming deduction of Rs. 9,04,669/- on account of leave encashment. However assessee has been given deduction to the extent of Rs. 3,00,000/- only as against the leave encashment of Rs. 9,04,669/-on the ground that deduction of Rs. 3,00,000/- is only allowable u/s 10(10AA) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and thereby sent the intimation to the assessee u/s 143(1) of the Act.
4. Assessee carried the matter before the Ld. CIT(A) by way of filing appeal, who has confirmed the disallowance by dismissing the appeal. Being aggrieved with the impugned order passed by the Ld. CIT(A), assessee has come up before the Tribunal by way of filing the present appeal.
5. At the very outset, It is brought to the notice of the Bench by the assessee by moving an application for condonation of delay that present appeal is filed with the delay of 1277 days and sought to condone the same on the grounds inter alia that the assessee had filed her appeal before Ld. CIT(A) through Shri Rajesh Gupta, who has not filed the appeal, nor intimated the assessee; that the assessee is not conversant with Income Tax Act, its rules and regulations and has always sought advice from the tax consultant; that assessee had full faith in the capacity and knowledge of her tax consultant and always acted under his legal advice; that assessee came to know about the impugned order on the receipt of high tax demand; that the delay has been caused due to non communication of the impugned order passed by Ld. CIT(A) by her tax consultant, nor he has challenged the same before the Tribunal.
6. On the other hand, Ld. DR for the Revenue opposed the application filed by the assessee to condone the inordinate delay on the ground that no “sufficient cause” has come on record.
7. When we examine the causes of delay put forth by the assessee in her application for condonation of delay, in the light of fact that she is a retired lady having no knowledge of Income Tax Act, its rules and regulations, “causes” put forth by her are sustainable because once she has engaged Shri Rajesh Gupta, tax consultant to pursue her appeal before Ld. CIT(A), it is his professional duty to intimate the dismissal order to the assessee and to take further action to file an appeal before the Tribunal.
8. It is settled principle of law that mistake or negligence on the part of a tax consultant engaged by the assessee cannot be attributed to the assessee and he/she should not be made to suffer. Furthermore, it is also settled principle of law, as has been held by the Hon’ble Supreme Court in case of Collector, Land Acquisition v. Mst Katiji [1987] 167 ITR 471 (SC) that to achieve the ends of justice provisions for condonation of delay in limitation Act should be given liberal interpretation.
9. By applying the settled principle of law, we find it a “sufficient cause” to condone the delay of 1277 days in filing the present appeal by the assessee. Hence the delay is hereby condoned. The appeal is being heard on merits.
10. We have heard Ld. ARs for the assessee and Ld. DR for the Revenue and perused the record available on file.
11. Undisputedly, the assessee being a retired employee has received leave encashment to the tune of Rs. 9,04,669/- and claimed exemption thereof u/s 10(10AA) of the Act. The Assessing Officer as well as Ld. CIT(A) by applying section 10(10AA)(ii) proceeded to hold that maximum exemption under this section is Rs. 3,00,000/- , thus disallowed the remaining amount of Rs. 6,04,669/-.
12. In the backdrop of the aforesaid facts and circumstances of this case the sole question arises for determination is “as to whether the assessee, who has retired after putting in more than 30 years of service is entitled for exemption of the entire amount of Rs. 9,04,669/- received by him on account of leave encashment?”
13. Ld. AR for the assessee contended that Hon’ble Delhi High Court in case of Kamal Kumar Kalia . v. Union of India [2019] 111  (Delhi/ in WP(C) 11846/2019 dated 08.11.2019, wherein claim of the assessee for exemption/deduction of Rs. 6,97,100/- on account of leave encashment on superannuation was allowed. The assessee also relied upon CBDT notification No. 31/2023 dated 24.05.2023.
14. Now this issue is no more res-Integra as the Coordinate Bench of the Tribunal has also decided an identical issue in case of VijayKumar Jain v. ITO [ITA No.175/Agr/2022, DATED 18-6-2025] . For ready perusal, operative part thereof is extracted as under:-
“8. We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee relying the decision of Hon’ble Delhi High Court has issued a notice to the Union of India in the case of Kamal Kumar Kalia & Ors. v. Union of India & Ors in WP(C) 11846/2019 dated 08.11.2019 wherein the court has given following directions :-
“8. We are however of the, prima facie, view that the grievances of the petitioner with regard to exemption limit under Clause (ii) of Section 10 (10AA) not being raised since 1998, appears to be justified. This is so because over the decades, the pay-scales admissible to government servants, and even employees of the Public Sector Undertaking and Nationalised Banks and all others have been upwardly revised, keeping in view, the financial growth in the country as well as on account of rising inflation. The last drawn salaries have increased manifold since time and notification issued under Clause (ii) of Section 10(10AA) was lastly issued, as taken note of hereinabove, on 31.05.2002. We therefore, issue notice to the respondents limited to this aspect. 9. Issue notice, learned counsel for the respondents accepts notice. Respondents should file counter affidavits be filed within six weeks. Rejoinder thereto, if any, be filed before the next date.”
8.1 Recently the Central Board of Direct Taxes Suomotu revised the limit for deduction u/s 10(10AA) of the Act and the revised limit now stood at Rs. 25,00,000 as specified vide notification no. 31/2023 issued by the ministry of finance. Since the leave encashment amount as claimed by the assessee is amount to Rs. 6,97,100/- which is below the revised limit of leave encashment exempt prescribed by the Board, the assessee is eligible to claim of deduction of said Rs. 6,97,100/-. Based on these observations the ld. AO is directed to allow the claim of the assessee u/s. 10(10AA) of the Act within the revised limit as prescribed. In terms of these observations the appeal of the assessee is allowed.”
11. Another coordinate Bench of Jaipur Tribunal vide order dated 31.10.2023 passed in ITA No. 385/JP/2023 for A.Y. 2020-21 in the case of Govind Chhatwani v. CIT(Appeals), has followed Ram Charan Gupta (supra) and held that the assessee was eligible for the claim of deduction in respect of the exemption of his leave encashment exceeding Rs.3,00,000/-, as the CBDT Notification No. 31/2023 dated 24.05.2023 has raised the limits to Rs.25,00,000/-.
12. It is established principle of law that a circular of CBDT, no doubt, has the force of law, can even supplant the law in case where it is beneficial to the assessee and can mitigate or relax the rigors of law. The powers of CBDT in issuing circular for general guidance are subject to two important conditions. One is that it does not entitle the Income-tax authority including the Board to issue instructions or circulars contrary to the substantive provisions of law or curtailing the relief, to which the assessee is otherwise entitled under law. The circular cannot, therefore, curtail the benefit conferred on the assessee or be contradictory to the Act. Hon’ble Apex Court in Union of India v. Wood Paper Limited AIR 1991 SC 2049 has held that the condition regulating the computation of benefit should be interpreted liberally.
13. In view of this legal position, we are in respectful agreement of what has been held by the afore cited coordinate Jaipur Benches of this Tribunal as noted hereinabove. We accordingly answer the aforesaid question in favour of the assessee and against the Revenue and hold that the appellant/assessee is eligible to claim deduction of Rs.7,51,755/- in view of limits raised to Rs.25,00,000/- vide Notification No. 31/2023 dated 24.05.2023. The appeals is thus liable to be allowed.”
15. So in view of what has been discussed above, we are of the considered view that the assessee, who has received an amount of Rs. 9,04,669/- on account of leave encashment as retiral benefits after putting in more than 30 years in Life Insurance Corporation of India is exempted u/s 10(10AA) of the Act. Ld. CIT(A) has erred in confirming the disallowance made by the AO/CPC, hence the AO is directed to allow the claim of the assessee.
16. Resultantly, the appeal filed by the assessee is hereby allowed.