Retiring Soon? ₹7.65L Leave Encashment Can Be Tax-Free
When you retire, the leave salary your employer pays you is exempt from income tax up to a limit. A recent tribunal ruling confirms this protection applies to bank employees too — here's how to claim it correctly.
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That ₹7.65L exemption covers roughly 5 years of chai-and-lunch money for a Delhi office worker.
Your leave encashment at retirement can be fully tax-free up to this amount
Key Takeaways
Check your Form 16 after retirement: if your employer deducted TDS on leave encashment, claim the Section 10(10AA) exemption in your ITR to get a refund.
Ask your HR or accounts department for a leave encashment breakup — confirm it uses only basic pay plus DA in the exemption formula, not gross salary.
If you retired between 2002 and March 2023 and never claimed the exemption properly, consult a tax practitioner about filing a revised or belated return where the window is still open.
When you retire, the leave salary your employer pays you is exempt from income tax up to a limit. A recent tribunal ruling confirms this protection applies to bank employees too — here's how to claim it correctly.
Here's what happened: An ITAT Jaipur ruling confirmed that a retired PNB employee's leave encashment of ₹7.65 lakh qualified for full tax exemption under Section 10(10AA) of the Income Tax Act.. The tax department had originally disputed the exemption, but the tribunal upheld the employee's claim, reinforcing that the exemption applies to PSU bank retirees just as it does to other private-sector employees.. The government raised the maximum leave encashment exemption ceiling from ₹3 lakh to ₹25 lakh in April 2023, benefiting all non-government employees who retire on or after that date..
What you should do: Check your Form 16 after retirement: if your employer deducted TDS on leave encashment, claim the Section 10(10AA) exemption in your ITR to get a refund.. Ask your HR or accounts department for a leave encashment breakup — confirm it uses only basic pay plus DA in the exemption formula, not gross salary.. If you retired between 2002 and March 2023 and never claimed the exemption properly, consult a tax practitioner about filing a revised or belated return where the window is still open..
The ₹25 lakh ceiling is a lifetime limit across all employers — if you've claimed leave encashment exemption with a previous employer, subtract that amount before claiming again.
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- [1]“Income Tax | ITAT Jaipur Allows ₹7.65 Lakh Leave Encashment Exemption for Retired PNB Employee” taxguruin · 1 Nov 2026
This article is reported by GoCredit's Editorial Team based on the source above. GoCredit synthesises, contextualises, and adds India-borrower-relevant analysis. We are not the original publisher.
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