Leave encashment exemption limit enhanced under section 10(10AA), with retrospective CBDT notification supporting full relief.

Leave encashment exemption for a retired private employee was considered under section 10(10AA) in light of CBDT Notification No. 31/2023, which enhanced the ceiling to Rs. 25,00,000 with effect from 01.04.2023. The analysis treated sub-clauses (i) and (ii) of section 10(10AA) as operating on par for application of the revised limit and relied on the explanatory memorandum stating that retrospective effect should not adversely affect any person. On that basis, restriction of the exemption to Rs. 3,00,000 was held unsustainable, and the enhanced exemption limit was applied.

---

---

Issues: Whether leave encashment received by a retired private employee was entitled to exemption beyond Rs. 3,00,000 under section 10(10AA) in view of Notification No. 31/2023 dated 24.05.2023 prescribing a higher limit with retrospective effect.

Analysis: The revised CBDT notification enhanced the exemption limit for leave encashment to Rs. 25,00,000 and was stated to operate from 01.04.2023. The decision followed co-ordinate bench rulings which treated sub-clauses (i) and (ii) of section 10(10AA) on par for the purpose of the revised limit and relied on the explanatory memorandum that no person would be adversely affected by giving retrospective effect to the notification. In the absence of any distinguishing factual or legal material, the restriction of exemption to Rs. 3,00,000 was held unsustainable.

Conclusion: The assessee was entitled to the enhanced exemption limit under section 10(10AA), and the disallowance restricting leave encashment exemption to Rs. 3,00,000 was deleted.

---