The Pune bench of the Income Tax Appellate Tribunal (ITAT) has granted relief to a retired PSU employee who faced a ₹2 lakh tax demand after tax authorities denied his leave encashment exemption solely because it was not reflected in his Form 16. According to Mint, the tribunal held that statutory tax benefits are determined by law and not by how the employer reports them, establishing an important precedent for taxpayers facing similar situations.
The case involved Bharat Harisingh Shengar, an employee of Maharashtra State Power Generation Company Ltd, who retired on 31 January 2020. Upon retirement, he received ₹8.49 lakh as leave encashment. As reported by Mint, the employee claimed exemption for the leave encashment under Section 10(10AA) while filing his income tax return and also claimed gratuity exemption under Section 10(10). However, the Assessing Officer rejected the leave encashment exemption because the employer's Form 16 did not mention the exempt amount, resulting in the entire ₹8.49 lakh being treated as taxable income.
The first appellate authority, the Commissioner of Income Tax (Appeals), upheld the tax officer's view despite the taxpayer providing relevant documents. According to Mint, the CIT(A) confirmed the disallowance and did not consider his retirement order, leave slip, and bank statement. This marked the taxpayer's second setback in the case, with the entire ₹8.49 lakh being reassessed as taxable income, increasing Shengar's assessed income to ₹13.17 lakh and resulting in the tax demand of more than ₹2 lakh.
The taxpayer approached ITAT Pune, which considered the supporting documents and granted relief in his favour. As reported by Mint, the tribunal emphasized that Section 10(10AA) exemption is statutory, not dependent on Form 16. The ruling relied on the 2025 ITAT Delhi ruling in the case of Shyam Sunder Sahni, a Canara Bank retiree, and established that Form 16 is only a tax deduction certificate issued by the employer and cannot override a taxpayer's statutory entitlement. The tribunal held that the exemption depends on the character of the receipt (leave encashment on retirement) rather than whether the employer's Form 16 shows it.
The ruling serves as an important reminder for salaried employees and retirees that Form 16 should not be treated as the sole basis for claiming tax exemptions. According to Mint, taxpayers should keep documents such as the retirement or resignation order, leave encashment statement or full-and-final settlement letter, and bank statements showing receipt of the amount. The case also refers to CBDT Notification No. 31/2023, under which the maximum exemption limit for leave encashment for non-government employees was increased to ₹25 lakh for retirements on or after 1 April 2023. This establishes important precedent for voluntary retirement scheme payments and statutory tax entitlements in the Indian tax jurisdiction.
