Income tax relief for Salary Received in Advance & on Arrears of Salary Received for earlier years
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. These all relief is claimed under section 89 of Income Tax Act, 1961.
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.
How to calculate relief under section 89?
1. Calculate tax payable on the total income, including arrears – in the year it is received
2. Calculate tax payable on the total income, excluding arrears – in the year it is received
3. Calculate difference between Step 1 and Step 2
4. Calculate tax payable on the total income of the year to which the arrears relate, excluding arrears
5. Calculate tax payable on the total income of the year to which the arrears relate, including arrears
6. Calculate difference between Step 4 and Step 5
7. Excess of amount at Step 3 over Step 6 is the tax relief that shall be allowed.
Please note that if amount at Step 6 > amount at Step 3, no relief shall be allowed.
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.
Important Note: For claiming relief under section 89(1) for arrears of salary received, it is mandatory to file Form 10E with the Income Tax department. If Form 10E is not filed and relief is claimed, then the taxpayer is most likely to receive notice from Income Tax department for not filing Form 10E.
Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
(Republished with Amendments by Team Taxguru)
I have received bonus in FY 2016-17 on which tax was deducted thereafter I retired in FY 2019-20 but this amount was recovered in FY 2021-22 (after retirement) and do not have any salary income. How to claim tax relief. Can I file form 10E to claim TDS refund for tax paid in FY 2016-17?
Sir, I’m Tripura Government pharmacist . I am serving since December 1988. NOW, MY SALARY up graded i.e. my basic pay upgraded from the initial basic i.e. from the first appointment December 1988. That’s why I have got salary arrear (which counted from December 1988). Now how I can get the tax relief and what will be the system of calculations.
Sir , I received 7th pay commission arrears salary. Can we claim tax relief to this amount under 89 act of IT.
Last year I paid 3 lac income tax. My total deductions are 80c 150000, parents senior citizen Medical expanses 50000 , 80DDB 1lakh,LTC 80000. How much IT return I get. Can u file IT return also. What is standard deduction, how can I benefitted.
I have received Pension Arears from 1-1-2006 to 30-10-2020 during fy 2020-21.My question is whether portion of Pension Arears from 1-3-2020 to 30-10-2020 shall be shown in separate row in annexure 1 against fy 2020-21 while submitting form 10 E for assessment year 2021-22.
Dear Sir,
I am a govt employee.
I did not received any salary for AY 2019-20 but i filed my itr for AY 2019-20 on due basis of my salary.
Now in AY 2021-22 I received my arrear.
Now employer is deducting TDS on the same. How can i get relief on tax on arrear as my salary is not taxable in both fy
Dear Sir, I would like to ask you that i have not filed my AY 18-19 & 19-20 income tax return as my income was not taxable but now ( in AY 20-21 ) i got arrears (for AY 18-19 & 19-20 ) so now i am coming in to taxable. Please advice to claim relief under section 89(1) of IT in AY 20-21.
Thank you
I have rec’d arrears from f.y 2005-06 to 2009-10 in f.y. 2012-13 , 2013-14 & 2014-15. Somehow i did not claim any relief that time. Can I claim it now?
I have received arrears of pay due to pay commission revision of pay. Though the details are given at Section 89 in I.T returns, the benifit was not given to me from the I.T department. I have received arrears in a/y 2005-06, 2010-11 and 2017-18. Form 10E could’t be filed for these years. kindly advise the procedure to file Form 10E now, to avail of the benifit. Thanks.
I have rec’d arrears from f.y 2005-06 to 2009-10 in f.y. 2012-13 , 2013-14 & 2014-15. Somehow i did not claim any relief that time. Can I claim it now?
I will receive an advance salary of Rs.5 lac in addition if I work at the company for 3 years, but if I leave before that period I need Rs.5 lac.
Will the advance salary be taxable.? If yes, then in which year.?
Dear Sir, I would like to ask you that i have not filed my last few years income tax return as my income was not taxable but now i got my last few years balance arrears (1998-99 to 2012-13)so now i am coming in to taxable area..can I divide the arrears in to financial years 1998-99 to 2012-13 under section 89(1) of IT.pls advice me as early as possible sir.
Thank you
Sirs,
I have received 72000 as arrears (F.Y.2013-14) in this F.Y.2014-15 . However my tax slab doesn’t change if I merge the arrears of Rs.72000 in the total taxable of F.Y.2013-14. Hence I have relief under section 89(1) is zero(0) for F.Y.2014-15.
But the case is I am gonna receive the equal amount as arrears in F.Y.2015-16 also.As per calculation , my tax slab will go to 20% from 10%. If I merge the amount in previous year then the applicable tax slab will remain 10% only form me for F.Y.2014-15 and F.Y.2015-16.
Please help in this regards as how to bifurcate this amount while preparing IT return of F.Y.2014-15 or this is to be certified by Employer on its Form-16
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.
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?
Please advise me how can I bifurcate my arrears due to me since July,2007 to 2013.
thanks
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.
how can we treat interest received on arrears salary
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
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
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
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………
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.
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%
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
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.
What is the rule for refund of Advance salary?
PLEASE EXPLAIN WHAT SHALL BE THE TREATMENT OF INTEREST RECEIVED ON ARREARS OF SALARY WHILE CALCULATING RELIEF UNDER SECTION 89
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.
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.