Increased exemption limit of Rs. 25 lakhs for Leave Encashment is retrospective – ITAT

ITAT allows benefit of increased exemption limit of Rs. 25 lakhs for Leave Encashment u/s 10(10AA)(ii)

In a recent judgment, ITAT Lucknow has allowed benefit of increased exemption limit of Rs. 25 lakhs for Leave Encashment amount u/s 10(10AA)(ii) of Act holding that increased limit is applicable with retrospective effect and extends the benefit to non-government employees also.

ABCAUS Case Law Citation:
5141 (2026) (05) abacus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in rejecting the exemption claim of Leave Encashment for AY 2020-21 and restricting the same to Rs. 300000/-.

The assessee retired from Bank. His return was processed u/s 143(1) of the Income Tax Act, 1961 (“the Act) by CPC whereby the assessee’s total income was determined u/s 143(1) of the Act. However, in the aforesaid intimation issued u/s 143(1) of the Act, the assessee’s claim of Leave encashment u/s 10(10AA) of the Act was restricted at Rs.3,00,000/-.

Before the Tribunal, the assessee relied upon the notification of Central Board of Direct Taxes dated 24.05.2023. The assessee also placed reliance on the judgment of Jaipur Bench of ITAT.

The Tribunal observed that similar issue had come up before the Bench and the case of the assessee was squarely covered in his favour by the aforesaid order.

Following the same, the Tribunal held that CBDT notification dated 24.05.2023 enhancing the exemption limit for exemption u/s 10(10AA) to Rs. 25,00,000/- is applicable with retrospective effect and extends the benefit to non-government employees as well.

Accordingly, the assessee’s claim of exemption u/s 10(10AA) of the Act was allowed, and addition was deleted.

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The decision of the ITAT Lucknow is is sharp contradiction of a recent decision of ITAT Ahmedabad ( 5132 (2026) (04) abacus.in ITAT) which placing reliance on the decision of the Kerala High Court held that the assessee was not entitled to the increased exemption of leave encashments u/s 10(10AA) of the Act and CBDT Notification No. 31/2023 is not retrospective. It appears that the decision of the ITAT Ahmedabad or Kerala High Court was however not brought to the knowledge of Lucknow Bench of ITAT.

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