Tax on leave encashment for PSU employees

Sir, Tax exemption on leave encashment on retirement for PSU employees is for 3 lacs as per IT dept. site. Recently it is 25 lacs from 01.04.23. We have received some messages that pre 01.04.23 retirees can also claim the tax deducted on amount over 3 lacs. As the limit earlier for non Govt employees was 10 times of Cabinet Secretary salary 30k X 10 i.e.3 lacs but the as the said salary increased many times but no notification was issued and the limit was kept only at 3 lacs. Only because no notification was issued PSU employees had to pay tax over 3 lacs.

Now from 01.04.23 it is rectified.

My query is can we, the pre 01.03 23 PSU retirees claim the refund by submitting revised ITR

PLEASE GUIDE

Thanks

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Hi Sanjay,

This is a relevant and often debated topic.

Background:

Earlier, leave encashment exemption on retirement for PSU employees was restricted to ₹3 lakhs (similar to non-government employees).
However, for government employees (including PSU), the exemption was historically linked to 10 months’ salary or a certain limit related to the Cabinet Secretary’s pay scale, which is much higher.
Recently, from 1st April 2023, the government increased the exemption limit for PSU employees’ leave encashment to ₹25 lakhs.
This change aligns PSU employees’ exemption with central government employees.

Your Query:

Can PSU retirees who retired before 1.4.2023 claim refund of excess tax deducted on leave encashment exceeding ₹3 lakhs by filing revised ITR?

Analysis:

Retrospective Application:
- The notification increasing exemption to ₹25 lakhs is effective from 01.04.2023.
- Generally, unless explicitly stated, such amendments do not apply retrospectively.
- Therefore, the exemption limit for leave encashment before 01.04.2023 remains ₹3 lakhs.
No Official Notification for Pre-1.4.23:
- Since there is no official notification or circular extending the higher exemption limit retrospectively, claims for refunds on earlier years may be difficult.
- Tax authorities usually reject such refund claims citing the rules effective during the relevant assessment year.
Filing Revised ITR:
- You can file revised ITR for the pre-1.4.23 years if you believe excess tax was deducted.
- But chances of success in refund claims without any supporting official clarification are low.
Possible Course of Action:
- Wait for any further clarifications or instructions from CBDT.
- Monitor official notifications regarding retrospective applicability.
- Consult a tax expert or Chartered Accountant for representing the case if you decide to file a refund claim.

Conclusion:

As per current rules and notifications, the ₹25 lakh exemption applies only to retirements from 1st April 2023 onwards.
PSU retirees who retired before 1.4.23 cannot claim refund for excess tax deducted under the old limit of ₹3 lakhs, unless a formal retrospective notification is issued.
You may still file revised ITR, but refund chances are uncertain.