LIC Retiree Secures Rs 9.04 Lakh Leave Encashment; ITAT Jaipur Provides Tax Relief After 1,277-Day Appeal Delay
The Income Tax Department has restricted a retired LIC employee’s exemption on leave encashment to Rs 3 lakh, seeking to tax the remaining Rs 6.04 lakh. This case highlights the differing tax treatment for government and private sector employees regarding leave encashment. The exemption limit for private sector employees was recently raised to Rs 25 lakh, but this change did not apply to the woman’s situation at the time of her retirement.
Case Background
The retired woman, who served at the Life Insurance Corporation of India (LIC) for over 30 years, received Rs 9.04 lakh as leave encashment upon her retirement on June 30, 2020. She claimed a full exemption on this amount when filing her income tax return. However, she was unaware that LIC employees are classified as non-government employees for tax purposes, which limited her exemption to Rs 3 lakh under the rules applicable in 2020.
After the Income Tax Department issued a notice to tax the remaining Rs 6.04 lakh, the woman sought relief from the Income Tax Appellate Tribunal (ITAT) in Jaipur. She explained that a tax consultant she had hired failed to file an appeal or inform her about the dismissal of her case, leading to a delay of approximately 1,277 days in her appeal submission.
Tribunal’s Decision
The ITAT accepted her request to condone the significant delay, stating that taxpayers should not be penalized for mistakes made by their tax consultants. The tribunal emphasized that a tax consultant is expected to communicate critical developments and advise clients accordingly. Citing a Supreme Court ruling, the tribunal noted that negligence by a consultant should not adversely affect the taxpayer.
After considering her explanation, the tribunal found sufficient cause to admit her appeal. The case involved the exemption ceiling under Section 10(10AA), with the tax authorities relying on the Rs 3 lakh limit while the woman’s representative pointed to a recent CBDT notification that raised the exemption limit to Rs 25 lakh. The tribunal referenced previous ITAT decisions that had already acknowledged the revised limit, ultimately ruling that the woman was eligible for exemption on the entire Rs 9.04 lakh received.
Chartered Accountant Suresh Surana clarified that while leave encashment for government employees is fully exempt from income tax, private sector employees are subject to the limits set by tax law. Any amount exceeding the exemption limit is taxed as salary in the year it is received.
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