Leave Encashment Relief – Revision, Rectification & Condonation

Why Revision of Return for 2025-26 Before 31 December 2025 Is the First and Fastest Remedy

The revision of the tax-free limit for leave encashment received by non-government (private sector) employees from ₹3,00,000 to ₹25,00,000 marks one of the most significant relief measures in recent years for salaried taxpayers. The enhancement fundamentally alters the taxability of terminal benefits received on retirement, resignation, or superannuation.

However, the benefit is not automatic. A large number of taxpayers have already filed their income-tax returns for Assessment Year 2025-26 by applying the old ₹3,00,000 ceiling, resulting in excess taxation, inflated taxable income, and reduced refunds.

This remedial framework has assumed significance in the backdrop of multiple orders of the Income Tax Appellate Tribunal (ITAT) rendered in favour of assessees, wherein the restrictive application of the erstwhile ₹3,00,000 ceiling on leave encashment for non-government employees was judicially questioned and relief was granted by holding the earlier limit to be discriminatory and outdated. These judicial pronouncements were subsequently reinforced by CBDT Circular No. 15/2023 dated 28 November 2023, issued pursuant to Notification No. 31/2023 dated 24 May 2023, whereby the Central Government enhanced the exemption limit to ₹25,00,000 under section 10(10AA) and the CBDT clarified the manner of its implementation. In this context, two detailed articles analysing the judicial evolution and the CBDT’s administrative response have already been published, and the present discussion is confined to outlining the procedural pathways now available to taxpayers for effectively availing the benefit of the revised exemption limit.

With 31 December 2025 fast approaching, revision of the return remains the most effective, quickest, and least procedurally restrictive option for correcting this mistake.

Why Revision of ITR Is the Preferred Route

Where the original return has already been filed but the enhanced exemption of ₹25,00,000 was not claimed, the law provides a clear statutory remedy through revision of return.

Revision is preferable because:

• It allows fresh computation of income
• It avoids prolonged correspondence with the Department
• It enables automatic recalculation of tax and refund
• It is processed under normal CPC workflow without discretionary approvals

Most importantly, the time window is finite.

Statutory Time Limit: Act before 31 December 2025

A revised return for Assessment Year 2025-26 can be filed up to 31 December 2025, provided the original return was validly filed within the prescribed framework. Once this statutory deadline expires, revision will no longer be permissible, compelling taxpayers to seek relief only through rectification proceedings or condonation applications, both of which involve greater procedural complexity, heightened uncertainty, and discretionary scrutiny. Revision before the cut-off date must therefore be treated as a priority compliance action, particularly in cases involving substantial relief on account of the enhanced leave encashment exemption.

Who Should Immediately Revise Their Return

Revision of return is strongly recommended in cases where leave encashment has been taxed beyond the revised exemption limit of ₹25,00,000, where only the erstwhile ₹3,00,000 exemption was claimed due to inadvertence, where the employer deducted tax at source by ignoring the revised limit, or where the refund was reduced or a tax demand arose on account of excess inclusion of leave encashment in taxable income. Revision is also warranted where salary schedules and computation statements reflect incorrect exemption figures. Even where the tax has already been paid, filing a revised return enables recomputation of income and recovery of the excess tax through refund, subject to processing under the normal statutory mechanism.

Step-by-Step Path to Revise the Income-Tax Return

The procedure for revising the return is entirely online and straightforward:

Step 1: Log in to the Income-Tax Portal

Access the e-filing portal using PAN and registered credentials.

Step 2: Navigate to “Revised Return”

Go to:

• e-File → Income-Tax Returns → File Revised Return

Step 3: Select Relevant Details

• Assessment Year: 2025-26
• Acknowledge the original ITR acknowledgement number and filing date

Step 4: Correct Leave Encashment Exemption

• Modify salary schedules
• Restrict taxable leave encashment to the amount exceeding ₹25,00,000
• Update total income and tax computation

Step 5: Validate and Submit

• Verify the revised return electronically
• Retain acknowledgement for records

Upon processing, excess tax paid becomes refundable with applicable interest, subject to system computation. The above steps are indicative and subject to portal architecture and system updates

Why Delay Can Be Costly

Missing the 31 December 2025 deadline results in:

• Loss of revision right
• Forced reliance on remedial provisions
• Delays in refund
• Increased documentation and justification burden

Given the magnitude of relief involved, inaction may translate into permanent tax loss for many retirees and employees.

Mapping the Remaining Two Operational Remedies: Years & Time Windows

While revision of return up to 31 December 2025 remains the primary and cleanest remedy for claiming the enhanced leave encashment exemption of ₹25,00,000, the law also recognises situations where this window has already closed. For such cases, two alternative statutory mechanisms exist, each operating in distinct time zones.

1. Rectification under Section 154

(For recently processed assessment years)

Rectification under Section 154 of the Income-tax Act, 1961 is available only where the return has already been processed and a mistake apparent on record exists—such as application of the old ₹3,00,000 limit instead of the revised ₹25,00,000 exemption subject to the rectification being confined to a mistake apparent from the record.

Assessment Years Where Rectification Is Practically Available

As on date, rectification is generally possible for:

• AY 2024-25
• AY 2023-24
• AY 2022-23
• AY 2021-22

Statutory Time Limit

Rectification can be sought within 4 years from the end of the financial year in which the intimation or order sought to be rectified was passed.

In practical terms:

• For CPC-processed returns, this window is still open for the above assessment years
• Relief is limited to correction of the exemption figure, without reopening factual issues

Rectification is therefore a post-revision remedy, suitable where:

• Revision time has expired, but
• The error is evident from the return records themselves

2. Condonation of Delay in Filing / Revising Return

(For older assessment years beyond rectification reach)

For assessment years older than those eligible for rectification, the only available route is condonation of delay for claiming refund arising from excess taxation.

This applies where:

• The statutory time for revision has expired, and
• Rectification under Section 154 is no longer available

Assessment Years Covered Under Condonation Route

Typically applicable for: AY 2020-21 and earlier. This route becomes relevant for any assessment year where the statutory deadline for revision of return has already lapsed and the limitation period for seeking rectification under Section 154 has also expired, leaving the assessee with no automatic or statutory remedy and necessitating recourse to discretionary condonation proceedings for claiming the refund.

Available Time Period

Applications for condonation of delay in claiming refunds can generally be filed up to six years from the end of the relevant assessment year—for example, up to AY 2019-20, AY 2020-21, and other earlier years, depending upon the year of accrual of refund—subject to prescribed monetary thresholds, administrative approval requirements, and the authority’s satisfaction regarding the existence of “genuine hardship.” Unlike revision or rectification, this route is entirely discretionary, involves extensive documentation, and is contingent upon subjective administrative satisfaction rather than automatic statutory entitlement.

Positioning of the Three Remedies (At a Glance)

“Applicable years are indicative and subject to limitation computed with reference to the date of intimation/order.”

Closing Clarification

While rectification and condonation remain valid remedial paths, both operate under narrower statutory tolerance and higher procedural friction. They are therefore fallback mechanisms, not substitutes.

Each of the three remedies—revision, rectification, and condonation—involves distinct legal principles and procedural safeguards, and accordingly each will be examined in an independent, detailed article.

For now, as the clock ticks toward 31 December 2025, revision of return remains the fastest, safest, and most legally secure option. 31 December 2025 is not just a date; it is the last statutory window for clean, automatic correction. Taxpayers who have missed the revised exemption should revise now, not litigate later.