Leave encashment is a common retirement benefit given to employees. Although Exemption under the Income tax Act is available in respect of leave encashment in certain circumstances, taxpayers have occasionally faced difficulties in respect of late filing, incorrect claim of exemptions, and deduction not allowed. In such circumstances, in order to get relief from the Income Tax Department, one can make use of Section 119(2) of the Income tax Act, 1961.

Tax Treatment of Leave Encashment

The tax treatment of leave encashment depends on who you work for and when you receive the amount.

1. Government employees (Central or State) do not have to pay any tax on leave encashment received at the time of retirement or resignation. It is fully tax-free.
2. Private sector (non-government) employees get a partial tax exemption on leave encashment received at retirement. Only a portion is tax-free, and the exemption is allowed within the limits set under Section 10(10AA) of the Income-tax Act.
3. Leave encashment received while you are still working (during service) is fully taxable for both government and private employees.

Because the exemption rules and calculations are complicated, many taxpayers either pay more tax than required or forget to claim the exemption while filing their Income Tax Return (ITR).

What is Section 119(2) of the Income-tax Act?

Section 119(2)(b) of the Income-tax Act is a relief provision intended to assist taxpayers who have faced genuine difficulties and could not meet tax deadlines on time. This section gives power to the Central Board of Direct Taxes for allowing Income Tax officers to relax time limits and grant relief in deserving cases.

To put it simply, Section 119(2) is second chance allowed to taxpayers. Irrespective of the fact that one has missed an important due date or committed some omission in the ITR, this section permits an application to the Income Tax Department for its mistake of course, the mistake must have been genuine and not willful being rectified on a second attempt.

How Section 119(2) Assists in Cases of Leave Encashment

Leave encashment creates many problems for employees, especially retirees, while filing their ITR. The tax rules being complex, people either make mistakes or fail to claim exemptions. Section 119(2) can be invoked in the following cases:

1.       If the taxpayer has overlooked claiming exemption for leave encashment available under Section 10(10AA) at the time of filing original or revised ITR.

2.       If the ITR was not filed within the due date and if the time limit to file revised return has already expired.

3.       If excess tax was paid due to wrong treatment of leave encashment as fully taxable.

4.       If the taxpayer was entitled to a refund but the claim became time-barred due to delay.

All such cases are to be brought within the ambit of condonation of delay by the Income Tax Department through a written application presented under Section 119(2) for claiming the correct exemption or refund.

Why This Provision is Important

Section 119(2) itself recognizes that genuine mistakes may have taken place, whether caused by ignorance of the law, wrong professional advice, health reasons, or retirement muddle. Rather than forfeiting the lawful tax benefit in perpetuity, the taxpayer is allowed to explain his case and obtain relief.

However, the same is not granted automatically. The Income Tax Department scrutinizes each and every application closely to be adequately satisfied that the hardship element is genuine and does not involve any intention to evade tax.

When Can You File an Application under Section 119(2)?

An application under Section 119(2)(b) can be filed when a taxpayer has a genuine and valid claim, but could not meet the normal income-tax deadlines due to practical difficulties. The key requirement is that the claim must be legally correct under the Income-tax Act and should not involve any false information or attempt to hide income.

This provision applies only when there is no dispute about the facts of the case. In simple words, the income should have been correctly disclosed, and there should be no concealment or misreporting. Section 119(2) is meant to help honest taxpayers who made mistakes due to circumstances beyond their control, not those trying to evade tax.

The delay in filing or claiming the benefit should be due to reasonable causes. These may include lack of awareness of tax provisions, incorrect advice received from a tax consultant, medical emergencies, retirement-related confusion, or technical issues while filing returns online. Such reasons are generally accepted as genuine hardship by the Income Tax Department.

This provision is most commonly used by retired employees, senior citizens, and salaried taxpayers who later realize that they have missed claiming a lawful exemption or refund after the return filing deadline has passed. Section 119(2) gives them an opportunity to explain their situation and seek relief, ensuring that genuine taxpayers do not permanently lose their rightful tax benefits due to procedural delays.

Authority with Whom the Application Is Filed

The authority depends on the amount of refund or relief claimed:

1. Up to ₹10 lakh – Principal Commissioner or Commissioner of Income Tax
2. Above ₹10 lakh – CBDT approval required

The application must be filed manually or electronically (as prescribed) and is examined on a case-by-case basis.

Documents Required for Section 119(2) Application

When filing an application under Section 119(2)(b) of the Income-tax Act, proper documentation plays a very important role. Submitting clear and complete documents helps the Income Tax Department understand the case easily and increases the chances of approval. Each document supports the taxpayer's claim and explains why relief should be granted.

To support the application, the taxpayer should submit:

1. A written application explaining the reason for delay or mistake
2. Copy of Form 16 or retirement benefits statement
3. Proof of leave encashment received
4. Computation of income showing correct exemption
5. Copy of the ITR filed (if any)
6. Bank details for refund, if applicable

Clear documentation strengthens the case and speeds up processing.

How the Income Tax Department Examines a Section 119(2) Application

When a taxpayer files an application under Section 119(2), the Income Tax Department carefully reviews the request before granting any relief. The purpose is to help genuine taxpayers while ensuring that the provision is not misused.

What the Tax Authority Checks

1. Legal validity of the claim
   The department first checks whether the exemption or refund being claimed is allowed under the Income-tax Act. For example, in leave encashment cases, the exemption must be valid under Section 10(10AA).
2. Genuine hardship
   The tax officer examines whether the delay or mistake happened due to genuine reasons such as lack of awareness, wrong professional advice, health issues, retirement-related confusion, or technical problems while filing the return.
3. No fraud or misrepresentation
   The authority ensures that the taxpayer has not hidden income, submitted false documents, or tried to misuse the provision. Relief is given only in honest cases.

Relief That May Be Granted If the Application Is Approved

If the Income Tax Department is satisfied with the explanation and documents, it may grant one or more of the following reliefs:

1. Permission to file a belated or revised return
   Even if the normal deadline has passed, the taxpayer may be allowed to correct the return.
2. Refund of excess tax paid
   If extra tax was paid due to a mistake, the department may allow a refund.
3. Correction of leave encashment exemption
   The correct exemption under Section 10(10AA) may be allowed if it was missed earlier

Important Points to Note Before Filing an Application under Section 119(2)

Relief under Section 119(2) is not granted automatically. Even if a taxpayer submits an application, the Income Tax Department has the discretion to accept or reject it based on the facts of the case. This means approval depends on how genuine the mistake is and how well the taxpayer explains the reasons for the delay or error.

This provision cannot be used in cases of tax evasion or false claims. If the department finds that income was deliberately hidden, incorrect details were knowingly provided, or fake documents were submitted, the application will be rejected. Section 119(2) is meant only for honest taxpayers who made unintentional mistakes, not for those trying to misuse the law.

Timely and honest disclosure significantly improves the chances of approval. When taxpayers voluntarily come forward, clearly explain the mistake, and provide correct information with proper documents, the department is more likely to consider the case favorably. Transparency and cooperation play a key role in the decision-making process.

It is also very important to file the application as soon as the mistake is discovered. Delaying further can weaken the case and may even result in rejection if the time limit expires. Early filing shows sincerity and ensures the claim is examined while records and documents are still easily verifiable.

• Section 119(2) relief is discretionary, not automatic.
• It cannot be used for cases involving tax evasion or false claims.
• Timely and honest disclosure increases the chances of approval.
• The application should be filed as soon as the mistake is discovered.

Conclusion

Section 119(2) of the Income-tax Act acts as an important relief provision for taxpayers who face genuine hardship due to procedural delays, lack of awareness, or unintentional mistakes. This provision is especially helpful in cases related to leave encashment taxation, where many employees and retirees unknowingly miss claiming the exemption available under the law.

Employees and retired individuals who have paid excess tax or failed to claim lawful exemptions should not ignore this option. Section 119(2) provides a legitimate and structured way to correct past errors, even after the normal filing deadlines have passed. It ensures that honest taxpayers are not permanently deprived of their rightful tax benefits due to technical or procedural lapses.

However, it is important to remember that relief under this section depends on genuine intent, proper documentation, and timely action. Taxpayers should act promptly once an error is identified and submit a clear explanation along with supporting documents to improve the chances of approval.