Retiree pays no tax on Rs 9.53L leave encashment

Chhaju, a retired employee from State Bank of India, received Rs 9.53 lakh as leave encashment when he retired in 2020. He attempted to claim a full tax exemption under Section 10(10AA) but encountered difficulties with the income tax authorities. Bank employees, both from nationalized and private sectors, could only claim a tax exemption of Rs 3 lakh on leave encashment if they retired before 2023.

The limit was raised to Rs 25 lakh from 2023 onwards. Nationalized bank employees, being non-government employees, are not eligible for the full tax exemption. The CPC Bangalore processed Chhaju's tax return, limiting his exemption to Rs 3 lakh and taxing the remaining Rs 6.53 lakh. However, Chhaju appealed to the ITAT Jaipur, which ruled in his favor on August 31, 2026, stating that he no longer has to pay any income tax on his leave encashment.