Prerogative Of Govt. To Fix Income Limit For Encashment Of Earned Leave Salary For Income Tax Exemption: Kerala High Court

The Kerala High Court has held that it is the prerogative of the government to fix the limit of income from the encashment of earned leave salary for the purposes of exemption from payment of income tax. Unless the government issues a notification fixing the limit of income for earned leave salary, an employee cannot claim exemption from payment of income tax on the encashment of earned leave for up to 300 days.

The bench of Justice Murali Purushothaman has observed that the last notification was issued on May 31, 2002, and the government did not thereafter issue a notification despite there having been three pay revisions. The latest notification is only in 2023, after which the upper limit has been fixed at Rs. 25 lakhs, taking the highest salary of the cabinet secretary, i.e., Rs. 2.5 lakhs per month.

“The Court, though, has sympathy with the petitioners, but considering the limitation on the powers of the Court, this Court is unable to issue a writ of mandamus commanding the respondents to revise the upper limit in respect of the employees who retired before April 1, 2023. This is in the realm of policy decisions, which are to be taken by the executive,” the bench said.

The petitioners have sought the direction of the respondent department to review the income limit for tax purposes on earned leave salary under Section 10AA(ii) of the Income Tax Act, 1961, with retrospective effect. After 2002, there had been no revision of the income limit for the purposes of exemption on encashment of earned leave salary under Section 10 (10AA)(ii) of the Income Tax Act.

The petitioners are retired employees of different public sector undertakings and scheduled banks. All the petitioners retired from service before April 1, 2023.

The income tax exemption under Section 10(10AA) cannot exceed Rs. 25 lakh, considering any prior tax exemptions granted under the same section in previous years.

The court disposed of the writ petition with liberty to the petitioners to approach the government for the reliefs sought, and the government may take a decision on their representations.

Counsel For Petitioner: Kevin Varghese Jacob

Counsel For Respondent: Premsankar R

Citation: 2024 LiveLaw (Ker) 364

Case Title: Balan Panicker Ramesh Kumar Versus Union Of India

Case No.: WP(C) NO. 3145 OF 2022

Click Here To Read The Order