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Income Tax

Full Leave Encashment Exemption Allowed as CBDT Raised Section 10(10AA) Limit to ₹25 Lakh

Case Law Details

TaxGuru Citation
2026 taxguru.in 6093
Case Name
Ram Charan Gupta Vs ITO (ITAT Jaipur)
Date of Judgement/Order
Only available for paid members
Related Assessment Year
2020-21
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Ram Charan Gupta Vs ITO (ITAT Jaipur)

The appeal before the Income Tax Appellate Tribunal (ITAT), Jaipur, arose from an order of the National Faceless Appeal Centre (NFAC) for Assessment Year 2020-21, which had upheld the CPC Bengaluru’s processing of the assessee’s return under Section 143(1) of the Income Tax Act. The assessee, a retired bank employee, had received leave encashment of ₹6,97,100 on retirement and claimed the entire amount as exempt under Section 10(10AA) of the Act. However, while processing the return, the CPC allowed exemption of only ₹3,00,000 and treated the balance amount of ₹3,97,100 as taxable, resulting in additional tax demand.

Before the CIT(A), the assessee argued that he should be treated as a government employee and therefore be entitled to full exemption of the leave encashment amount. The CIT(A) rejected this contention, relying on judicial precedents which held that employees of public sector undertakings and nationalised banks cannot be regarded as Central or State Government employees merely because such entities may be considered “State” under Article 12 of the Constitution. Accordingly, the CIT(A) upheld the restriction of exemption to ₹3,00,000.

In appeal before the Tribunal, the assessee reiterated that nationalised banks are controlled and regulated by the Central Government and therefore their employees should be treated as government employees for the purpose of Section 10(10AA). The assessee also contended that the disallowance had been made without assigning adequate reasons and that the enhanced income and resulting demand were unjustified. Further, reliance was placed on developments relating to revision of the exemption limit for leave encashment.

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Author Info

CA Sandeep Kanoi
Qualification: CA in Job / Business
Company: Taxguru Consultancy
Location: Mumbai, Maharashtra
Articles Published: 21,740

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