The tax exemption for leave encashment of non‑government employees was capped at Rs 3 lakh until the 2023 budget, a rule that applied to LIC retirees who are classified as non‑government staff.
In May 2023, the Finance Ministry raised the ceiling for such exemptions to Rs 25 lakh, a change that took effect for returns filed from the 2023 assessment year onward.
Mrs. Moongia, who retired from LIC on 30 June 2020, claimed the full Rs 9.04 lakh of her leave encashment as exempt in her 2025 tax return. She was unaware that LIC employees fall outside the government employee bracket, and the Income Tax Department assessed the tax on the excess Rs 6.04 lakh.
The woman’s appeal was delayed by 1,277 days because her tax consultant failed to file the necessary notice and did not inform her of the dismissal by the Commissioner of Income Tax (Appeals). When she finally approached ITAT Jaipur with a new chartered accountant, the tribunal had to decide whether the delay could be condoned.
ITAT Jaipur accepted the delay, citing the Supreme Court precedent in Collector, Land Acquisition v. Mst Katiji that allows leniency when a tax professional’s negligence causes the delay. The tribunal then applied the 2023 notification and granted her exemption on the entire Rs 9.04 lakh of leave encashment, effectively wiping out the tax demand.
The ruling reinforces the 2023 policy shift and signals to other retirees that the Income Tax Department will recognize the higher exemption ceiling if procedural delays can be justified.