Government employees get full income tax exemption on leave encashment and this has no upper limit, however non-government employees (private sector, public companies, etc) get only Rs 3 lakh (now increased to Rs 25 lakh from 2023) tax exemption. But are State Bank of India employees government employees or non-government employees? As per Income Tax law, SBI employees are non-government employees, so they can claim up to Rs 3 lakh (now increased to Rs 25 lakh tax exemption from 2023) for leave encashment.
However, Mr Gupta from Mangalam Aanadna Jaipur, a retired SBI employee, did not know this distinction, and so when he got Rs 9.29 lakh leave encashment at the time of his retirement on August 14, 2020, he did not pay any tax. Back when Gupta retired the leave encashment tax exemption was still Rs 3 lakh (on May 24, 2023 via Notification No. S.O. 2276(E), it was enhanced to Rs 25 lakh), so technically Gupta should have paid tax on Rs 6.23 lakh amount (9.29-3).
