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Usually salary income is received as it becomes due but it's quite often that an employee may receive a component of his salary in the form of arrear or advance salary in the course of employment. In that case relief of tax u/s 89 is allowed under Income Tax Act, 1961 as then the assessee might have to pay higher taxes because the arrear /advance salary is taxed in the year of receipt of the same and not in the year in which it is actually due. The difference in the tax liability in due year and in the receipt year might be due to changes in the slab rates. For this reason, the provision of relief u/s 89 comes in.
Relief under section 89 is available when
One important thing to note is that relief can only be claimed if tax payable is actually higher due to receipt of such arrears. If there is no extra tax liability, relief is not allowed.
Yes, relief under section 89 is available if the employee has not claimed the tax exemption which is available under section 10 (10C).
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 Y (Step 6) fromX (Step 3)and you will get the relief amount.
This can be better understood with the help of the example below:
Total Income of Suraj was Rs. 15,00,000 p.a. in FY FY 2019-20 and also received an arrear of Rs. 3,00,000 p.a. For FY 2018-19. His total income in FY 2018-19 was Rs. 6,00,000 p.a.
Particulars | Tax Liability for FY 2019-20 | Tax Liability for FY 2018-19 | ||
Salary inclusive of arrears | Salary without arrears | Salary inclusive of arrears | Salary without arrears | |
Step -1 | Step -2 | Step -4 | Step -5 | |
Total Income | 18,00,000 | 15,00,000 | 9,00,000 | 6,00,000 |
Income Tax | 352500 | 262500 | 92500 | 32500 |
Cess | 14100 | 10500 | 3700 | 1300 |
Total Tax Liability | 366600 | 273000 | 96200 | 33800 |
Step- 3 (X) Tax at (1) – Tax at (2) | 93600 | – | ||
Step- 6 (Y) Tax at (4) – Tax at (5) | 62400 |
|||
Relief u/s 89 : Step 3 – Step 6 | 31200 | |||
Tax payable :- Tax at (1) – Relief | 335400 |
Relief under section 89 = (X) - (Y) = 93600 - 62400= 31200.
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.
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 is –
Don’t forget to click on “Save Draft” while filling out 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 is introduced. If the 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 has dues of salary from the previous year, then the assessee can claim relief as per the procedure of section 89(1).
If the relief u/s 89 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 which arrears are received to claim relief under section 89
To claim relief under section 89(1), the filing of Form 10E and income tax return is mandatory.
Rebate under section 87A means tax rebate available to the resident individuals whose total income does not exceed Rs.5 lakhs . 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, hence, HRA arrears can be claimed under this section.
To avail tax benefits for the arrears, individuals are required to file Form 10E. Form 10E is a necessary requirement under section 89 to claim a deduction for the arrears including family 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 to the detailed calculation explained above.
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