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.
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.
|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|
|Total Tax Liability||3,75,950||2,83,250||1,08,150||46,350|
Tax at (1) – Tax at (2)
|Step- 6Tax 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
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:
Form 10E is the form for furnishing particulars of income under section 192(2A) for claiming the relief. The features of Form 10E :
The steps to file Form 10E online –
Don’t forget on click on “Save Draft” while filling the form and lastly click on “Preview & submit “and you are done with it.
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).
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).
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.
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)
To claim relief under section 89(1), the filing of Form 10E and income tax return is mandatory.
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.
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.
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.
Yes, Relief u/s 89 of the Income Tax Act can be claimed for receiving any portion of salary as an advance salary. For understanding, how to calculate the tax benefit under section 89 please refer the detailed calculation explained above.
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