Leave encashment exemption: revised statutory ceiling under Notification No.31/2023 permits full retirement leave payment to be exempt.

Section 10(10AA) exemption for leave encashment is applicable to the retired bank employee because the statutory ceiling for exemption was revised by Notification No. 31/2023 to a higher limit exceeding the claimed amount; applying that revised ceiling the entire claimed leave encashment is within the prescribed exemption and therefore allowable to the assessee.

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Issues: Whether the assessee, a retired bank employee, is entitled to exemption of leave encashment under Section 10(10AA) of the Income-tax Act, 1961, where the assessing officer restricted exemption to Rs.3,00,000 on the ground that the assessee was not a Central or State Government employee.

Analysis: Section 10(10AA) provides for exemption of leave encashment on retirement subject to limits prescribed by the Board. The Tribunal in Ram Charan Gupta relied upon judicial precedents distinguishing employees of nationalised banks/statutory corporations from Central/State Government employees for the purpose of section 10(10AA) limits. Subsequently, the statutory/executive limit for exemption under Section 10(10AA) was revised by the Ministry of Finance as reflected in Notification No. 31/2023, raising the exemption ceiling to Rs.25,00,000. The claimed leave encashment of Rs.6,97,100 is below the revised ceiling established by that notification. Applying the revised statutory limit to the facts, the full claimed amount falls within the exemption now prescribed.

Conclusion: The exemption under Section 10(10AA) of the Income-tax Act, 1961 is allowable to the assessee for the full claimed leave encashment of Rs.6,97,100 in view of the revised limit specified by Notification No. 31/2023; appeal allowed in favour of the assessee.

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