Taxability of Employee Leave Encashment from Govt and Non-Govt Depts must be Examined Separately: ITAT [Read Order]
The Appellant had attempted to claim total leave encashment of ₹10,87,092 from both, the Department of Telecommunications and BSNL
![Taxability of Employee Leave Encashment from Govt and Non-Govt Depts must be Examined Separately: ITAT [Read Order]](https://images.taxscan.in/h-upload/2025/06/19/2050352-itat-govt-taxscan.webp "Taxability of Employee Leave Encashment from Govt and Non-Govt Depts must be Examined Separately: ITAT [Read Order]")
The Income Tax Appellate Tribunal ( ITAT ), Pune Bench has ruled that the taxability of employee leave encashment should be bifurcated between Government and Non-Government departments and must be examined separately. Therefore, the impugned order denying exemption under Section 10 (10AA) of the Income Tax Act, 1961 was reversed by the bench. The appellant was appointed in...
The Income Tax Appellate Tribunal ( ITAT ), Pune Bench has ruled that the taxability of employee leave encashment should be bifurcated between Government and Non-Government departments and must be examined separately. Therefore, the impugned order denying exemption under Section 10 (10AA) of the Income Tax Act, 1961 was reversed by the bench.
The appellant was appointed in the Department of Telecommunications (DoT), a Central Government department, and was later taken into BSNL, which is a Public Sector Undertaking. The assessee worked on both the Department of Telecommunication and BSNL, and he claimed the total leave encashment of ₹10,87,092.
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During his time of retirement, the National Faceless Appeal Centre (NFAC) has confirmed the action of the Centralized Processing Centre (CPC) denying exemption under Section 10 (10AA) of the Act at ₹7,87,092 received towards Leave Encashment.
The return was processed by the CPC by limiting the exemption to the extent of ₹3,00,000 and made an addition of ₹7,87,092, disallowing the claim of exemption.
Aggrieved, the assessee preferred an appeal before the NFAC but failed to succeed.
The bench of Dr. Manish Borad, Accountant member, observed that the employee taxability should be examined separately between the Government and Non-Government Departments, as the Section 10(10AA)(i) applies to Central/State Government employees, in which the taxability is fully exempted. Further, Section 10(10AA)(ii) applies to non-government employees where the taxability is exempt up to ₹3,00,000.
The ITAT also noted that employee leave encashment should be bifurcated between the Govt and Non-Govt departments.
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The tribunal examined that the appellant claimed the amounts separately, i.e, ₹8,35,256 from the Department of Telecommunications (Govt. of India) and ₹2,51,836 from BSNL.
Leave Encashment for Central/State Govt. is fully exempt, and therefore the amount of ₹8,35,256/- received by the assessee from Department of Telecommunications (Govt. of India) deserves to be exempt from taxation under section 10(10AA)(i) of the Act.
As far as the remaining ₹2,51,836 was concerned, the Tribunal noted that the same being less than ₹3,00,000 is also exempt under section 10(10AA)(ii) of the Act.
Accordingly, ITAT ordered that the entire leave encashment amount is exempt from tax, while reversing the denial of exemption by the CPC and NFAC.
Vinod Pawar represented the Department while no one appeared for the appellant.
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