Leave encashment exemption ceiling applies prospectively; higher limit cannot be claimed for retirements before the notification date.

An enhancement of the leave encashment exemption ceiling under section 10(10AA) was held to operate prospectively from 01.04.2023, so a non-government employee who retired before that date could not claim the higher limit. The earlier exemption cap of Rs. 3,00,000 remained applicable because the later Notification No. 31/2023 did not apply retrospectively. The text relies on the principle that revision of the ceiling is within the executive domain and, absent a binding mandate, a later notification cannot extend enhanced relief to prior retirements.

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Issues: Whether the enhanced limit of exemption for leave encashment under section 10(10AA) applied retrospectively to a non-government employee who retired before 01.04.2023.

Analysis: The exemption for leave encashment was limited to Rs. 3,00,000 under the earlier notification and was later enhanced to Rs. 25,00,000 by Notification No. 31/2023, which was stated to operate from 01.04.2023. The claim for retrospective application was rejected in view of the authoritative Kerala High Court decision holding that revision of the upper limit is a matter within executive domain and that the later notification could not be applied retrospectively to employees who had retired before its commencement. The contrary reliance on another decision was not accepted as no final order was shown.

Conclusion: The enhanced limit did not apply retrospectively to the assessee, and the restriction of exemption to Rs. 3,00,000 was upheld.

Final Conclusion: The exemption claim beyond Rs. 3,00,000 failed, and the addition sustained below remained undisturbed.

Ratio Decidendi: A notification enhancing the ceiling for leave encashment exemption operates prospectively from its stated effective date and cannot be applied retrospectively in the absence of a binding mandate to do so.

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