Whether exemption in the case of leave encashment is applicable to resignation too?

1.  As per Section 10(10AA) of the Income Tax Act, the leave encashment exemption at the time of their retirement, whether superannuation or otherwise is restricted to Rs. 25,00,000 [amended by Finance Act 2023].

2.  The word ‘otherwise’ covers the case of retirement which takes place not at the time of superannuation but at any other time.

3.  According to the – Madras HC in CIT v. R.J. Shahney (1986) and Bombay HC in CIT v. D.P. Malhotra (1998):

Voluntary retirement from service is one such case that falls within the four corners of the words “otherwise than superannuation”.

The words “or otherwise” should not be construed ejusdem generis, but rather as extending the scope of the statute to include the case of retirement which does not take place at the superannuation but some other time.

Barring the case of “termination” of service, any other case of leaving service (whether under the voluntary retirement scheme of the employer or by way of resignation by the employee) is covered by section 10(10AA).

4.  Thus we can take the stand that leave encashment received on resignation is also covered by the exemption U/S 10(10AA).