Leave pay exempt only for govt staff

Q. I retired from a bank as an AGM in November 2016 and received Rs 9,66,913 as leave encashment which were accumulated during my whole service in the bank for 36 years. An amount equal to 30% as TDS was deducted from my leave encashment amount above Rs 3 lakh which comes to nearly Rs 1.90 lakh.

SC Vasudeva

Q. I retired from a bank as an AGM in November 2016 and received Rs 9,66,913 as leave encashment which were accumulated during my whole service in the bank for 36 years. An amount equal to 30% as TDS was deducted from my leave encashment amount above Rs 3 lakh which comes to nearly Rs 1.90 lakh. During the current financial year when I requested my CA to claim refund of TDS amount under Section 10(10AA) of the Act from the Income Tax Department while filing ITR, I was told that this Act is applicable to Central or State Government employees only and not to bank employees. Many a times I have read in these columns wherein you have mentioned that leave encashment amount at the time of retirement is exempt under Section 10(10AA) of Act. My query is why this Act is not applicable to bank employees and why it is applicable to Central and State Government employees. Is it not against the law of natural justice. Please guide me how this TDS amount can be claimed from the Income Tax Department. If so, please explain the procedure.

— SK Mehta

A.Your CA has correctly informed you that Section 10(10AA)(i) of the Income-tax Act 1961 (The Act) is applicable to Central and State Government employees and the amount of cash equivalent to leave salary in respect of a period of earned leave at their credit, received by them is exempt from tax in its entirety. However, Section 10(10AA)(ii) of the Act applies to employees other than the Central and State Government employees and in such case exempted amount is restricted to Rs 3 lakh in respect of cash equivalent to leave salary at their credit. The provisions of the Act also provide different treatment for perquisites received by Central and State Government employees. The Parliament possibly thought in its wisdom that such difference in treatment is required for Central and State Government employees. Therefore, the question raised by you can be answered by the Government of India. You may approach the court that the provisions as contained in the Act are discriminatory and therefore, are against various provisions of the Constitution of India.

Q. I am planning to sell my house located at Karnal and have just constructed another house at Panchkula that is within one year before the sale of my Karnal house. Please let me know the exact procedure and the papers needed to save capital gain tax. Please also advise what documents are required to prove the construction so as to claim benefit under Section 54 of the Act.

— Rajinder Singh

A. It has been stated in the query that you have already constructed a residential house at Panchkula. The capital gain arising on the sale of a residential house should be utilised for the construction of a new house within three years after the date of sale of a residential house. The expression used in Section 54 of the Act “within one year before or two years after the date of sale” is applicable when the house is purchased within the aforesaid period. For construction, the period of three years has to be after the date of sale. You may therefore not be able to claim benefit under Section 54 of the Act in view of the fact that the house has been constructed before the date of sale of the residential house.