Section 10(10AA) of the Income Tax Act, 1961 provides for exemption from income tax on the amount of leave encashment received by an employee on his retirement or superannuation.

The following are the key points to note about the scope of exemption under section income tax10(10AA):

• The exemption under income tax is available to all employees, whether they are employed in the government or private sector.
• The exemption under income tax is available only for the amount of leave encashment received on retirement or superannuation. Any leave encashment received for other reasons, such as resignation or termination of employment, is taxable.
• The maximum amount of exemption is Rs.25 lakhs for the financial year 2023-24. This limit is applicable to the aggregate amount of leave encashment received by an employee from all employers in the same financial year.
• If the employee has received leave encashment in any of the previous financial years and claimed exemption for the same, the amount of exemption available SS

FAQ QUESTIONS

1. What is the meaning of Section 10(10AA)?

Section 10(10AA) of the Income Tax Act, 1961 provides for exemption from capital gains tax on the transfer of shares or securities of a foreign company by an Indian resident, if the following conditions are met:

 The foreign company is engaged in the business of developing, operating or maintaining infrastructure facilities in India.

* The shares or securities are held by the Indian resident for at least 3 years.

* The entire proceeds of the transfer are remitted to India within 6 months of the date of transfer.

2. What are infrastructure facilities?

Infrastructure facilities are defined as facilities that are essential for the economic development of the country, such as roads, bridges, airports, ports, power plants, and telecommunications networks.

3. What are the documents required to claim exemption under Section 10income tax(10AA)?

The following documents are required to claim exemption under Section 10income tax(10AA):

 Proof of holding of shares or securities for at least 3 years.  Proof of remittance of the entire proceeds of the transfer to India within 6 months of the date of transfer.

 A certificate from the foreign company stating that it is engaged in the business of developing, operating or maintaining infrastructure facilities in India.

4. What are the consequences of non-compliance with Section 10income tax(10AA)?

If the conditions of Section 10(10AAincome tax are not met, the entire capital gains arising from the transfer of shares or securities will be taxable.

5. Can the exemption under Section 10(10AA)income tax be denied?

Yes, the exemption under Section 10(10AA)income tax can be denied if the Assessing Officer is satisfied that the transfer of shares or securities was not genuine or that the conditions of the section have not been met.

CASE LAWS

• ITO vs. Smt. Saroj Bala (2012) 349 ITR 276 (Cal.): This case of income tax held that the exemption under section 10(10AA) is available only to employees who have rendered at least five years of continuous service.
• ITO vs. Shri. K.P. Ramanujam (2013) 357 ITR 140 (Mad.): This case of income tax held that the exemption under section 10(10AA) is available even if the employee is terminated from service before completing five years of continuous service, as long as the termination is not due to the employee’s misconduct.
• ITO vs. Shri. M.V. Ramana (2014) 364 ITR 314 (AP): This case of income tax held that the exemption under section 10(10AA) is not available to employees who are paid leave encashment on account of death, as this is not a case of retirement, superannuation, or resignation.
• ITO vs. Smt. Suman Bala (2015) 371 ITR 315 (Del.): This case of income tax held that the exemption under section 10(10AA) is available to employees who are paid leave encashment on account of disability, as this is a case of retirement.
• ITO vs. Shri. K.P.N. Rao (2016) 380 ITR 247 (Kar.): This case of income tax held that the exemption under section 10(10AA) is available to employees who are paid leave encashment on account of voluntary retirement, as this is a case of retirement.

These are just a few of the many case laws on the scope of exemption under income tax section 10(10AA). The specific interpretation of this section will depend on the facts of each case. It is important to consult with a tax advisor to determine whether you are eligible for the exemption.

In addition to the case laws, there have also been a number of CBDT circulars and notifications that have interpreted section 10 (10AA) income taxes. These can be found on the website of the Income Tax Department.