Retired before April 2023? ITAT allows LIC employee to claim tax exemption on ₹9.04 lakh leave encashment

A retired LIC employee won ITAT Jaipur relief on ₹9.04 lakh in leave encashment after the tax department restricted her exemption to ₹3 lakh. The ruling examines whether the enhanced ₹25 lakh limit introduced in 2023 can benefit employees who retired earlier.

A retired Life Insurance Corporation of India (LIC) employee has won relief from the Income Tax Appellate Tribunal (ITAT), Jaipur, in Renu Moongia vs ITO (assessment year 2021-22), after the tax department restricted the exemption on her ₹9.04 lakh leave encashment to ₹3 lakh.

In its order pronounced on 28 September 2026, the tribunal directed the assessing officer to allow exemption on the entire amount, relying on earlier tribunal decisions that applied the enhanced ₹25 lakh exemption limit introduced in 2023.

Moongia retired on 30 June 2020 after serving LIC for more than 30 years. She received ₹9,04,669 as leave encashment along with other retirement benefits and claimed exemption on the entire amount under Section 10(10AA) of the Income Tax Act, 1961.

However, while processing her income tax return for assessment year 2021-22, the Centralised Processing Centre (CPC) allowed only ₹3 lakh as exempt and treated the remaining ₹6,04,669 as taxable. The first appellate authority upheld the restriction, prompting her to approach the tribunal.

Why ITAT allowed the exemption

The dispute arose from a change in the tax treatment of leave encashment. In the Union Budget 2023, the government announced an increase in the exemption limit for non-government salaried employees from ₹3 lakh to ₹25 lakh. The Central Board of Direct Taxes (CBDT) notified the revised ceiling through Notification No. 31/2023 on 24 May 2023, with effect from 1 April 2023.

Moongia, however, had retired in June 2020, before the revised limit was announced. The question was whether she could benefit from the enhanced ceiling despite retiring earlier.