Retiree gets tax notice for leave encashment

Retired SBI employee Mr. Gupta received a tax notice for Rs 9.04 lakh leave encashment upon his retirement on August 14, 2020. He was unaware that SBI employees were considered non-government employees for tax purposes, which meant he could only claim a tax exemption of Rs 3 lakh (increased to Rs 25 lakh from 2023). The Income Tax Assessing Officer adjusted Mr. Gupta's ITR to exclude the leave encashment exemption and added Rs 6.29 lakh to his income, totaling Rs 13.05 lakh.

Mr. Gupta challenged this decision in the Income Tax Appellate Tribunal (ITAT) Jaipur, where he won the case and received full tax relief on his leave encashment. The ITAT applied the Rs 25 lakh exemption retrospectively for Mr. Gupta, as the enhancement of the limit from Rs 3 lakh to Rs 25 lakh was considered remedial and should benefit employees who retired shortly before the revision.