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The income tax law in the country provide for different treatment of tax on retirement benefits such as leave encashment, gratuity , provident funds etc., earned by central/state government employees and others. For instance earned leave encashment/gratuity at the time of retirement is fully exempt for government employees as against which there is are ceiling for non government employee. 


DR. MS. ANITA SUMANTH J., of the Madras High Court in [2022] 448 ITR 318 (Mad) held that employees of organisations that are managed, administered and substantially funded out of Government funds and grants can also be considered as government employees so to benefit them the exemption on retirement benefits. It is on this basis that the Court held in this case that Tamil Nadu Agricultural University is administered and managed by Regulations framed by the statute and relatable to State power and employees of the Tamil Nadu Agricultural University are hence Government servants, entitled to the benefit of exemption under section 10(10AA)(i) of the Act.


This statutory disparity has lead to several rounds of litigation on who is a government employee. For instance several decisions rendered in the context of employees of nationalized banks and public sector undertakings (PSUs), Government companies etc. 


Whether it is fair to give separate and distinct tax treatment to the two classes of employees at the time of their retirement? Whether it is desirable to challenge such statutory provisions in the Court of law in the present date with inferior life evaluation indices?

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