Taxpayers can claim a deduction under Section 89 of the Income Tax Act when they receive any part of their salary in advance or arrears. This rule also applies to arrears of family pensions.

What is the relief under Section 89 of the IT Act?

When employees receive back pay or compensation along with their regular wages, they often face higher tax payments. If the amount had been received in the relevant year, the additional tax would have been spread over multiple years, significantly reducing the tax burden.

Fortunately, taxpayers can claim relief for arrears of wages through Section 89 of the Income Tax Act. This section was inserted under Chapter VIII (Rebates and Allowances) of the Income Tax Act, 1961.

Individuals can apply for Section 89 relief in the following situations:

  • Salary received as arrears or in advance.
  • Changes in pension.
  • Salary received upon termination of employment.
  • Legal aid received under section 89.

Calculation of relief under Section 89:

Step 1: Calculate the tax liability for the current year by adding the liabilities to the gross income.

Step 2: Calculate the tax liability for the current year by subtracting the liabilities from the total income.

Step 3: Calculate the difference between the values obtained in step 2 and step 1 (let M denote the difference).

Step 4: Calculate the tax liability for the year in which the liabilities were incurred.

Step 5: Subtract the liabilities from the gross income to calculate the tax liability for the year the liabilities were incurred.

Step 6: Calculate the difference between the values obtained in steps 5 and 4 (let N represent the difference).

How to claim a deduction under Section 89 of the Income Tax Act, 1961:

To claim a deduction under Section 89 of the Income Tax Act, 1961, taxpayers need to fill out Form 10E on the Income Tax website. Form 10E must be filed before the income tax return is submitted. To substantiate the delay, it is important to maintain a payment slip when claiming tax deductions for deferred income.

Steps to File Form 10E:

Follow these steps to file Form 10E and claim an exemption under Section 89 of the Income Tax Act:

Step 1: Log in to the e-Filing website using your user ID and password.

Step 2: After logging in, click on the “e-file” tab, and from the drop-down menu, select “Income Tax Forms”.

Step 3: The income tax forms will be displayed on the screen. From the “Form Name” option in the drop-down menu, select “Form 10E – Relief under Section 89”.

Step 4: Choose the relevant ‘Assessment Year’ for which you are claiming relief and select ‘Online Preparation and Submission’ under ‘Submission’.

Step 5: After clicking the “Continue” button, a new page will open for Form 10E. Fill out the form by entering the required information and filling in the applicable sections.

Step 6: Click “Save Draft” while filling out the form, and after completing it, click “Preview & Submit”.

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2 Comments

  1. Nand lal Sharma says:

    Whether relief u/s 89 (1) of I.Tax Act 1961 ois also admissible for A.Y. 2024-25 in new/ alternate Tax regime or not? Kindly convey your precious advice.

  2. PRATAP NARAYAN says:

    1- Which amount should be filled in column 5 of form 10E , Calculated amount or the amount already paid in respective year?
    2- System is not giving benefit of senior citizen while auto calculating tax for column 6 of form 10E?
    3- System is auto calculating tax as per old regime in column 6 of form 10E, while I have opted new regime since FY 2020-21 ?
    4- Can Standard Deduction be claimed from arrear salery in respective year while filling form 10E, when it was not claimed before due to non payment in whole year.

    please help in above quarries soon.

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