Renu Moongia retired from LIC on 30 June 2020 after more than 30 years and received ₹9,04,669 in leave encashment. The Centralized Processing Centre (CPC) allowed only ₹3,00,000 and treated ₹6,04,669 as taxable, but ITAT Jaipur later condoned a 1,277-day delay and directed the Assessing Officer to allow her exemption claim.
What ITAT Jaipur decided
Moongia’s return showed leave encashment received on retirement. While processing it under section 143(1), the CPC applied the then-familiar ₹3 lakh limit and allowed exemption only up to that amount. The balance of ₹6,04,669 was added to taxable salary. Her first appeal was unsuccessful.
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ITAT Jaipur condoned a 1,277-day delay in pursuing the matter and accepted that the enhanced monetary ceiling introduced later could be considered in her case. It set aside the disallowance and directed the Assessing Officer to grant the eligible exemption. The tribunal’s operative direction, as reproduced in the case report, states: “CIT(A) has erred in confirming the disallowance made by the AO/CPC, hence the AO is directed to allow the claim of the assessee.”
The decision concerns the reported facts and does not mean every retiree automatically receives a ₹25 lakh exemption or an immediate refund.
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The figures in the dispute
| Item | Amount or fact |
|---|---|
| Leave encashment received | ₹9,04,669 |
| Amount initially allowed by CPC | ₹3,00,000 |
| Amount initially disallowed and taxed | ₹6,04,669 |
| Retirement date | 30 June 2020 |
| Delay condoned by ITAT Jaipur | 1,277 days |
Why the CPC made the adjustment
Section 10(10AA) treats government and non-government employees differently. A LIC employee is not automatically treated as a Central or State Government employee for this exemption. Unless the employer falls within the government category in section 10(10AA)(i), the employee is examined under section 10(10AA)(ii), which contains a monetary ceiling and a least-of-four calculation.
For an earlier assessment, the ceiling commonly applied by the CPC was ₹3,00,000. That limit explains why the processing system exempted only ₹3 lakh of Moongia’s ₹9,04,669 receipt and taxed the remainder.
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How leave encashment is taxed under section 10(10AA)
Central and State Government employees
Qualifying leave salary received at retirement by a Central or State Government employee is exempt under section 10(10AA)(i), subject to the statutory conditions. The employer’s legal status must be established; a public-sector or government-linked employer is not, by that fact alone, proof that the employee belongs to the category covered by clause (i).
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Other employees
For employees covered by section 10(10AA)(ii), the exempt amount is the least of these four figures:
| Test | What it measures |
|---|---|
| Actual receipt | The leave-encashment amount paid on retirement |
| Cash equivalent of unutilised earned leave | Leave balance converted using average monthly salary under the statutory formula |
| Ten months’ average salary | The salary-based limit, calculated using the relevant salary records, including the final ten-month computation used for the claim |
| Prescribed monetary ceiling | The ceiling applicable to the employee’s clause, assessment year and claim |
The final exemption can therefore be lower than the amount credited by the employer. Any excess over the eligible figure remains taxable under the head “Salaries” at the taxpayer’s normal slab rates.
Payment timing matters
Check whether the payment was made on retirement or superannuation and whether it relates to resignation, termination or another event. The exemption analysis depends on the statutory category and the occasion of payment; do not assume that every leave-encashment payment receives the retirement exemption.
Does the ₹25 lakh ceiling apply to an earlier retirement?
CBDT Notification No. 31/2023, dated 24 May 2023, increased the ceiling for employees covered by section 10(10AA)(ii) from ₹3,00,000 to ₹25,00,000. In Moongia’s case, retirement occurred on 30 June 2020, before the notification. ITAT Jaipur nevertheless followed tribunal precedent that allowed the enhanced ceiling to be considered for the earlier retirement while deciding the pending claim.
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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problemsThis is an important route for taxpayers whose returns were processed with the old limit, but it is not a blanket ruling that rewrites every completed assessment. The result can depend on the assessment year, the procedural stage, whether the taxpayer is relying on the notification in an appeal or rectification, and whether the other three limits produce a lower amount.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to report the exemption in an income-tax return
- Report the salary receipt. Include the leave encashment in the salary information reported from the employer’s Form 16 or salary certificate.
- Compute the eligible exemption. Apply the government/non-government classification and the least-of-four tests. Use the leave balance and salary figures certified by the employer.
- Disclose the exempt portion separately. Enter the qualifying amount in the prescribed ITR field or schedule for exempt allowances under section 10(10AA); do not simply omit the payment from salary.
- Reconcile with Form 16 and the return. The taxable balance should agree with the salary figures after the exemption, while the exempt amount should be separately identifiable.
- Respond to a CPC adjustment. Compare the section 143(1) intimation with the filed computation. If the enhanced ceiling or a calculation error was not considered, examine the available rectification or appeal route, including proceedings before the National Faceless Appeal Centre and, where appropriate, the tribunal.
Documents to keep before claiming relief
- Retirement or superannuation order showing the date and reason for cessation of service
- Employer certificate and Form 16
- Leave-balance statement showing earned leave available and the encashment calculation
- Salary calculation supporting the average monthly salary and final ten-month figure
- Bank or payroll proof of the amount actually received
- Details of any leave-encashment exemption claimed from a previous employer
- Copy of the CPC intimation under section 143(1)
- Any NFAC, Commissioner (Appeals) or other appellate order
What taxpayers should verify in a similar case
- Employer category: Establish whether the employer qualifies under section 10(10AA)(i) or whether clause (ii) applies.
- Assessment year: Identify the year in which the retirement payment was reported and the rule applied by CPC.
- Retirement event: Confirm that the payment was connected with retirement or superannuation rather than another form of separation.
- Leave and salary inputs: Recalculate the unutilised-leave value and ten-month average-salary limit from primary payroll records.
- Monetary ceiling: Check whether the ₹25 lakh ceiling is being claimed under Notification No. 31/2023 and whether the applicable proceedings permit that argument.
- Earlier claims: Account for any exemption already used for leave encashment from another employer, because the aggregate claim can affect the amount available.
- Procedural remedy: Preserve every intimation and appellate order; the correct response differs between an initial CPC processing adjustment, rectification and an appeal.
What the Jaipur ruling means for the ₹9.04 lakh claim
Moongia’s victory shows that a later increase in the statutory ceiling can be relevant when an earlier retirement claim is still being litigated. It does not establish that the full cash receipt is exempt in every case. The Assessing Officer must still apply the employer test, payment conditions, leave-balance and salary limits, the monetary ceiling and any prior exemption claims. Taxpayers should therefore recalculate the eligible amount and document it rather than relying on the ₹25 lakh figure alone.
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