The Relief is available under the following cases:

  • Salary received in arrears or in advance;
  • Salary for more than 12 months in one financial year;
  • Family Pension being paid in arrears;
  • Gratuity
  • Compensation on termination of employment; and
  • Commuted Pension

One important thing to note is that relief can only be claimed if tax paid is actually higher due to receipt of such arrears. If there is no extra tax liability, relief is not allowed. In case of VRS Compensation being received by the employee no relief shall be granted under Section 89 if one has claimed exemption u/s 10(10C) for Voluntary Retirement Scheme. An assessee can claim either exemption under section 10(10C) or relief u/s 89 but not both together.


To calculate the relief, the following steps should be taken:

Step 1: Firstly, calculate the tax due in the current year by including the arrears in your total income.

Step 2: Now calculate the tax due in the current year by excluding the arrears from your total income.

Step 3: Compute the difference of the two figures of Step 1 & 2 and let’s call that difference as ‘X’.

Step 4: Now Calculate your tax due in the year for which the arrears have been received by including the arrears in your total income.

Step 5: Then Calculate your tax due in the year for which the arrears have been received by excluding the arrears from your total income.

Step 6 : After that compute the difference of the two figures of Step 4 & 5 and let’s call the difference as ‘Y’.

Step 7: Lastly subtract X (Step 3) from Y (Step 6) and you will get the relief amount.

This can be better understood with the help of the example below:

Suraj earned Rs. 15,00,000 p.a. in FY 2016-17 and also received an arrear of Rs. 3,00,000 p.a. for FY 2014-15. His total salary in FY 2014-15 was Rs. 6,00,000 p.a.

The table below explains the calculation of relief:

Particulars

Tax liability for F.Y. 2016-17

Tax Liability for F.Y. 2014-15

Salary inclusive of arrears

Salary without arrears

Salary inclusive of arrears

Salary without arrears

Step -1

Step -2

Step -4

Step -5

Salary

18,00,000

15,00,000

9,00,000

6,00,000

Income Tax

3,65,000

2,75,000

1,05,000

45,000

Cess

10,950

8,250

3,150

1,350

Total Tax Liability

3,75,950

2,83,250

1,08,150

46,350

Step- 3
Tax at (1) – Tax at (2)

92,700

Step- 6

Tax at (4) – Tax at (5)

( Column Merge required)––

 

( Column Merge required)–

61,800–

Relief u/s 89 : Step 3 – Step 6

30,900

Tax payable :-
Tax at (1) – Relief

3,45,050

Relief under section 89 = X-Y = 92700-61800=30900.

Now, after the calculation of relief let’s talk about the mandatory requirement in these cases:

To claim relief u/s 89, you must submit Form 10E online on the Income Tax Website before filing the Return of Income. Remember, your salary slips serve as proof of receipt of arrears therefore should be kept safely.


Now, let’s understand the process to file Form 10E:

The steps to file Form 10E online –

  • Login to https://incometaxindiaefiling.gov.in/ with your User ID, password and date of birth.
  • Now click on tab named ‘e-File’ and select ’Income Tax Forms’.
  • The screen shall appear as below. From the 1st drop down select Form 10E.
  • Now select the Assessment Year for which Form 10E is to be filed and fill the submission mode as "Prepare and submit online."
  • Now when you will click on continue, the Form 10 E screen shall appear as below. You may read the instructions on how to file Form 10E given in the 1st blue tab and then enter the relevant information by clicking on other blue tabs.

Don’t forget on click on “Save Draft” while filling the form and lastly click on “Preview & submit “and you are done with it.


Frequently Asked Questions

Q- Due to past year's salary arrears I have to pay additional income tax. Is there any solution to distribution of arrears if previous year ITR is filed?

To save you from paying higher tax on arrears, section 89(1) is introduced. If total income of previous year includes salary arrears, then you can avail relief under section 89(1).


Q- What are the methods to save tax on arrears?

Section 89(1) of the Income Tax Act,1961 states that if an assessee's income any dues from the previous year, then the assessee can claim relief as per the procedure of section 89(1).


Q- Can I claim relief for an arrear of past years under section 89(1) if it is not mentioned in form 16 and shown as gross income of the current year?

If the details of arrears is not mentioned in Form 16, there is nothing to worry, you can still claim the relief by providing all the details related to arrears at the time of filing of return.


Q- Is it necessary to file previous year’s income tax return to get the benefit of section 89A for arrear salary received?

There is no such requirement by the IT department . the only thing required is the documents and details of the previous years income in respect of arrears to claim relief under section 89(1)


Q- Is the filing of an individual income tax return mandatory to claim relief u/s 89(1) of the income tax act?

To claim relief under section 89(1), the filing of Form 10E and income tax return is mandatory.


Q- What is "Less Relief U/s 87 A" reflect in salary slip as per India income tax?

Relief under section 87A means tax rebate available to the individuals whose total income does not exceed Rs.5 lakh . For this rebate no additional investment is required.


Q- Can I claim relief under Section 89 of the Income Tax Act for HRA arrears?

HRA is the part of the salary and salary arrears comes under the purview of Section 89(1), hence, HRA arrears can be claimed under this section.


Q- How should I get benefit of tax exemption for the arrears of my pension received on 27 March relating to previous three financial years?

To avail tax benefits for the arrears, individual is required to file Form 10E . Form 10E is necessary requirement under section 89(1) to claim a deduction for the arrears including pension arrears.


CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.