In a landmark decision, the Income Tax Appellate Tribunal in Chennai ruled that a retired bank officer could claim the full Rs 12.27 lakh leave encashment as exempt under Section 10(10AA)(ii) after the 2023 exemption ceiling hike. The taxpayer, who retired in FY 2019‑20, filed his 2020‑21 return claiming only Rs 3 lakh under the old ceiling, and the Centralised Processing Centre had allowed that exemption, treating the balance as taxable.
The case hinged on whether the 2023 notification, effective 1 April 2023, applied retrospectively to the 2020‑21 assessment year. The Commissioner of Income Tax (Appeals) had denied the claim on 25 February 2026, citing the earlier ceiling.
ITAT, however, treated the amendment as curative and beneficent, extending the higher ceiling to the taxpayer because the explanatory memorandum expressly stated no person would be adversely affected by the retrospective effect. The tribunal noted that the change was intended to update an outdated limit and mitigate hardship for employees who had already retired.
The decision now allows the employee to reduce his taxable income by the entire leave encashment amount, and it may influence pending appeals where retirees seek benefits from post‑2023 hikes. The taxpayer plans to file a revised assessment, and the ruling will likely be cited in future cases involving similar situations.