• May
  • 28
  • 2010

Income tax relief for Salary Received in Advance and on Arrears of Salary Received for earlier years

Posted In Income Tax | 19 Comments » Print Friendly and PDF

Any income due or received by an employee from his employer or former employer is taxable under the head `salaries’ as per the provisions of the Income Tax Act, 1961. It is pertinent to note that the salary earned in respect of a particular financial year is subject to tax as per the tax rates applicable for that financial year.

There are occasions when an employee may receive income in a particular financial year, which relates to earlier financial years, i.e., as arrears of salary or he may receive certain payments in advance for future financial years, i.e., as advance salary.

In such an event, it is possible that if the entire income is added to the salary income of that financial year, then the tax payer may have to pay tax at a higher rate depending on the slab rates under which his income is otherwise taxable.

In such a case, there is a relief provided under the Act to ensure that the employee is not worse off.

Arrears/Advance Salary

Where a tax payer receives a sum in the nature of salary being paid in arrears or in advance or receives in any financial year salary for more than twelve months or receives profits in lieu of salary or family pension paid in arrears due to which his total income is taxable at a rate more than the rate at which it would otherwise had been taxable then he may claim relief in respect of tax rates. Besides, certain other receipts like gratuity received for past services, compensation received from the employer or former employer on termination of the employment, payment received in commutation of pension, etc are also eligible for the purposes of said relief, subject to certain conditions.

The said relief is to be claimed in the financial year in which the extra payment by way of arrears, advance is taxed. Broadly, the relief under these provisions is arithmetic in nature, as it involves finding out two rates of taxes. The first is the rate of tax applicable to the total income including the extra amount in the year of receipt. Second is finding out the rate by adding the arrears to the total income of the year to which they relate.

Exceptions to tax relief

There has been a difference of view whether relief under this provision could be claimed; when the tax payer has also claimed benefit / exemption under some other provision under the Act. It has now been specified that no such relief can be availed in respect of the amount received by the tax payer on his voluntary retirement or termination of service if an exemption in respect of the same has been claimed otherwise by the tax payer under some other provision.

Furnishing of particulars for claiming the relief

The tax payer is required to furnish the particulars in respect of the above relief to his employer in the specified form so that the same could be considered in respect of his tax calculations.

This is a beneficial provision in case of payments received by an employee from his employer/former employer for more than one financial year especially when due to these additions, the tax payer’s slab rate moves upward or when there is a variation in tax rates in different financial years. Therefore, when salary/other specified payments are received in arrears or in advance, the benefit could be availed of by the tax payer by paying due attention to the relief provisions as specified above.


19 Responses to “Income tax relief for Salary Received in Advance and on Arrears of Salary Received for earlier years”

  1. Virender Sharma says:

    I HAVE RECEIVED THE SALARY ARREAR WEF 1-1-2006 TO 30-9-2012 IN THE TWO FINANCIAL YEAR 2012-2013 AND 2013-2014(HALF / HALF PORTION ) BUT I HAVE NOT TAKE TEX RELIEF TILL NOW. HOW CAN I COMPUTE TAX RELIEF.

  2. raejsh kumar pandey says:

    dear sir,
    i am a government servant. i had received arrears amount in financial year 2012-13 for financial year of 2011-12. i have submitted the itr form assessment year 13-14 but not bifurcating this amount.

    can i bifurcate the arrears amount for financial year of 11-12 and 12-13?

  3. Jitender Kumar says:

    Please advise me how can I bifurcate my arrears due to me since July,2007 to 2013.
    thanks

  4. Darshan says:

    Sir
    I have got confirmation arrears in the year 2012-13 due to which I had paid tax of Rs 5600 for the year.
    Kindly suggest me the solution to gain the excess tax paid i.e. which form should I fill ? OR How can I bifurcate the arrears.

  5. Bhanu prakash says:

    how can we treat interest received on arrears salary

  6. Anuradha says:

    this year in the month of April I received last years arrears. Last year I am not taxable. kindly advise me this arrears income current year taxable? or any having relief under income tax

  7. praveen says:

    sir

    I have take advance salary from my company of rs.50000/- my annual salary Rs156000/-.kindly advise my income is taxable ??
    if taxable what is calculation

  8. RAJMOHAN RAJADHYAKSHA says:

    i have received arrears of my pension from the yer 1982 to 2012. i want to claim the rebate under section 89(1) of i tax can i claim the rebate and bifurcate the total income from year 1982 or is there any limits for the year some one has said that claims under this section the limit is for 3 years only is it true pl reply

  9. Dharmanand says:

    Sir i m a government employee and i got my salary arrear in 2011_12 which hike my taxable slab, can i refund it if yes tell how………

  10. Mohamed Salil says:

    Is there any upper limit while claiming the benefits of tax evasion for the arrears of salary.   I mean will it be able to get relief for the entire amount received as arrears during the last year irrespective of the prescribed rates of slab.

  11. ayaz ahmed says:

    sir i an working ssgcl last year company paid us 03 installment of salaries against 03 years payment.during time company paid income tax no one year 11%

  12. SANJAY JOIL says:

    It seems you are a LIC employee (Assistant) . Dear friend, in the Corporation,in some places the local offices are allowing the exemptions of transport allowance and medical benefit at their own risk. However, central office has issued a circular in 2005 clearly stating that transport allowance and medical benefit can not be bifurcated.

    As per my view, the said bifurcation should be allowed as both of them are “exempted from tax” and both of them are a kind of “reimbursement of expenses” and not an investment.

    The part bifurcation given in LIC Salary Module also considers both the allowances while bifurcation, it means the SDC personnel was provided data to that effect while developing that program.

    I am working on the matter and let you know the proof thereof shortly. Keep in touch at sanjayjoil@gmail.com sanjay.joil@licindia.com

  13. RAM says:

    I recd the arrears for the f.y.2006-07,2007-08,2008-09,2009-10 in year f.y.2010-11 but I want to claim the relief under sec89 for the f.y.2008-09 and f.y.2009-10 is it possible to claim relief for two years and balance amount recd for f.y.2006-07 and 2007-08 in current year income

  14. tushar chatterjee says:

    For the arrear salary received 2007-08, 2008-09, 2009-10 it included transport / conveyance allowance Rs.2400/- ,3600/, and Rs.3600/- respectively. For bifurcation under section 89(1) the office is not allowing rebate on the transport / conveyance allowance while calculating bifurcated tax liability for the above years . Instead the amount received is added as income in the respective year thereby bifurcated tax liability has increased. Will it be appropriate while calculating tax liability for current year i.e. 2010-2011 the rebate under transport / conveyance allowance be taken as Rs.19200/- (Rs.9600/-being current year transport allowance and Rs.9600/-arrear conveyance allowance).
    Therefore I submit my submission to your goodself to clarify on the above point.

  15. Viral Balar says:

    What is the rule for refund of Advance salary?

  16. NARESH DALMIA says:

    PLEASE EXPLAIN WHAT SHALL BE THE TREATMENT OF INTEREST RECEIVED ON ARREARS OF SALARY WHILE CALCULATING RELIEF UNDER SECTION 89

  17. Dinesh says:

    We have received a residential house in Sept.2005 by way of will of our mother.It is a property of we four brothers.Now it has been sold.Please let us know what will be treatment of amount so received.
    Further on the article given in this page We have to say that the amount of arrears can be bifurcate and can be shown in the year to which it belongs? It may come under lower tax slab.In order to reduce tax libilies.

  18. CA Sandeep Kanoi says:

    Thanks for the suggestion. We will surely consider the same in our future Article on this topic.

  19. ravindra says:

    Some key words could have been included in the article. “Look up Form 10E supplied and specified by Income Tax dept. which has annexures for arrears in salary,gratuity etc. fill them up compute the tax relief going back to your respective financial years return data and tax slab rates and submit to employer. as simple as that “.
    With such explanations your article will be useful to Assesses who do self assessment.

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