The Central Issue
Whether exemption of leave encashment under Section 10(10AA), in the case of a non-Government employee, should be restricted to ₹3,00,000 as per the earlier monetary ceiling, or allowed up to ₹25,00,000 in view of the enhancement made by Notification No. 31/2023 dated 24.05.2023 — particularly where the assessee retired from a public sector bank.
Facts
The assessee retired from Bank of Baroda, a public sector undertaking bank, and received leave encashment of ₹9,26,904 at the time of retirement.
While processing the return under Section 143(1), the CPC restricted the exemption to ₹3,00,000 on the ground that the employer was other than a Central or State Government. The assessee contended that in view of Notification No. 31/2023 enhancing the exemption limit to ₹25,00,000, the entire amount received was exempt.
Statutory Provision — Section 10(10AA)
Section 10(10AA) grants exemption in respect of leave encashment received at the time of retirement:
The Amendment — Notification No. 31/2023
Original ceiling
The monetary ceiling for non-Government employees under Section 10(10AA) was originally fixed at ₹3,00,000 — a limit set decades ago that had become outdated.
Enhanced ceiling
The Central Government, by Notification No. 31/2023 dated 24.05.2023, enhanced the monetary ceiling to ₹25,00,000 with effect from 01.04.2023.
Beneficial and remedial
The notification clarified that no person would be adversely affected by giving retrospective effect. The amendment is beneficial and remedial in nature, intended to remove hardship caused by the outdated ceiling.
ITAT Dehradun — Findings and Outcome
The ITAT Dehradun held that the CPC had mistakenly applied the obsolete limit of ₹3,00,000 despite the statutory enhancement to ₹25,00,000. Since the assessee's leave encashment of ₹9,26,904 was well within the revised ceiling, the Tribunal directed the AO/CPC to grant full exemption under Section 10(10AA). The appeal was allowed.
Consistent Judicial View Across ITAT Benches
The Dehradun decision is consistent with a uniform judicial position adopted by multiple ITAT Benches across the country. The following decisions have all held that the enhanced limit of ₹25 lakh is applicable and that CPC adjustments restricting exemption to ₹3 lakh are not sustainable:
- ▸Jaipur Bench: Ram Charan Gupta (ITA No. 408/JP/2022, order dated 27.06.2023) — Enhanced limit of ₹25 lakh applicable; exemption beyond ₹3 lakh allowed.
- ▸Chandigarh Bench: Satish Kumar Thakur (ITA No. 211/CHD/2023) — Benefit of enhanced monetary limit must be granted.
- ▸Jaipur Bench: Mangala Ram Nimbark, Govind Chhatwani, Devendra Kumar Gupta, Dashrath Kumar Sen, Devi Dutt Agrawal — CPC adjustments under Section 143(1) deleted; exemption up to ₹25 lakh directed.
- ▸Ahmedabad Bench: Suman Kumar Jha (ITA No. 1179/Ahd/2024, order dated 18.03.2025) — Once notification issued, assessee entitled to full exemption within revised ceiling; CPC demand deleted.
- ▸Agra & Delhi Benches: Sharad Shukla, Vijay Kumar Jain, Anil Kumar Khatri, Sham Sunder Sahani, Neelam Gupta — Enhanced exemption uniformly allowed.
Expert Commentary
CA Ajay Kumar Agrawal — 14 February 2026
The consistent judicial view across multiple Benches demonstrates that the enhancement brought about by Notification No. 31/2023 is beneficial, clarificatory, and intended to remove hardship faced by retired employees whose leave encashment amounts exceeded the archaic limit of ₹3 lakh fixed decades ago. Once the monetary ceiling stands enhanced to ₹25 lakh, CPC cannot continue to apply the obsolete limit while processing returns under Section 143(1). The legal position is now fairly settled that leave encashment received by non-Government employees is eligible for exemption up to ₹25,00,000, subject to fulfilment of other statutory conditions. CPC adjustments restricting exemption to ₹3,00,000 appear unsustainable where the assessment year falls within the applicability of the amended limit.
Disclaimer: The above note is prepared for academic and professional discussion purposes. Readers are advised to examine the facts of their respective cases and applicable assessment year before taking any action. Judicial outcomes may vary depending upon specific factual and legal circumstances.
Outcome
The ITAT Dehradun allowed the appeal and directed the AO/CPC to grant full exemption of ₹9,26,904 under Section 10(10AA). The CPC's restriction of exemption to ₹3,00,000 was held to be erroneous in view of the enhanced ceiling of ₹25,00,000 under Notification No. 31/2023.
Gyanendra Panwar v. ADIT — ITA No. 238/DDN/2025 — 11.02.2026 (ITAT Dehradun) — In favour of assessee
Practical Takeaway for Retiring Employees
- ▸Non-Government employees — including employees of public sector banks, PSUs, and private companies — are entitled to leave encashment exemption up to ₹25,00,000 under Section 10(10AA) for AY 2023-24 onwards.
- ▸If your ITR was processed under Section 143(1) with a CPC adjustment restricting exemption to ₹3,00,000, you can file a rectification request or appeal against the demand.
- ▸The amendment is beneficial and retrospective — it applies from 01.04.2023 and no person is adversely affected by the retrospective application.
- ▸Employees of public sector banks are treated as non-Government employees for this purpose — but the enhanced ₹25 lakh ceiling fully covers most leave encashment amounts received at retirement.
- ▸Retain your leave encashment certificate from the employer and Form 16 showing the exempt amount claimed — these are essential documents if the CPC raises a demand.