Dear Experts,

I have a query regarding the interpretation of Section 10(10AA) of the Income-tax Act, 1961.

The section provides exemption for leave encashment received by an employee "at the time of his retirement whether on superannuation or otherwise."

My question is:

Does the exemption under Section 10(10AA) also apply when an employee resigns from service and receives leave encashment as part of the Full & Final Settlement?

I have noticed that:

  • The Income-tax Act uses the words "retirement whether on superannuation or otherwise", but does not specifically mention "resignation."
  • CBDT Notification No. 31/2023 only enhances the exemption limit to ₹25 lakh and does not clarify whether resignation is covered.
  • I came across certain High Court judgments (e.g., CIT v. D.P. Malhotra (229 ITR 394) (Bom.) and CIT v. R.J. Shahney (159 ITR 160) (Mad.)) which appear to suggest that resignation is also covered. However, I could not find any CBDT Circular or Notification expressly confirming this position.