Income from Salaries, Income Tax

Arrears of Salary and Relief Under Section 89 (1) and Form 10 E

Relief under 89 (1)

In the section on salary we discuss Section 89 (1) which provides relief in tax for those receiving salary for earlier years. In cases where this happens the Government has provided relief if there is an increase in your tax liability in this year due to such arrears.

Relief under this section can be claimed where a person has received arrears of salary. Remember, salary is taxable only upon receipt by the individual. The amount of arrears will be mentioned in Form 16.

Calculating Relief under 89 (1) is complicated and involves following steps:

First – calculate the tax payable for the current year in which arrears are received including arrears less the tax payable including arrears.

Second – calculate the tax payable for the current year in which arrears are received excluding arrears less the tax payable including arrears.

Third – Calculate the Difference between the taxes payable in year of receipt.

Fourth – calculate the tax payable for the year to which arrears relate excluding arrears less the tax payable including arrears.

Fifth – Calculate the tax payable for the year to which arrears relate excluding arrears less the tax payable including arrears.

And lastly, calculate the Difference between the taxes payable in year to which arrears relate.

The excess of difference in tax payable in year of receipt versus year to which arrears relate will give amount of relief under 89 (1).

Also, Form 10 E needs to be filed if arrears are to be claimed.

Form 10E

Form 10E is an important form to save tax on income generated through arrears by applying the provision of Section 89(1).  

It is mandatory for an assessee to file Form 10E for claiming relief under section 89(1).

An assessee who fails to file Form 10E, will not be allowed the relief under Section 89(1). If the Income-Tax Return is filed without filing Form 10E and it is showing defective, the ITR should be revised after filing Form 10E. The ITR can be revised before end of the assessment year, i.e. 31 March 2020 for the financial year ended 2018-19.

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