Sometimes you may have received a portion of your salary in arrears or in advance, or you may have received a portion of your family pension in arrears or in advance. Do you think? Will it be fully taxable in the year of receipt at the higher rates or is there any relief available on it?

Yes! There is a relief available under section 89 of Income Tax Act, but you have to follow some procedure to get eligible for that relief.

Background

As per Income Tax Act, where an assessee received any portion of salary / profit in lieu of salary / family pension in arrears or in advance in any one financial year, of salary of more than twelve months or other payments, due to which his total income is assessed at a higher rate than at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant relief.

In simple words; whenever you receive any portion of salary or family pension which relates to the past periods rather than the current year, that receipt may increase your total income of the current year and you may be attracted a higher slab rate which results in higher tax.

To cover up this situation and maintain parity in slab rates, a provision to provide relief is available in the Income Tax Act.

Calculation of relief

To understand calculations of relief in a better way, let’s take an example:-

Suppose you received salary in arrears of Rs.1 Lac in March, 2019, [which is for past period services rendered in financial year 2010-11.]

Total Income of FY 2018-19 (excluding salary in arrears) is Rs. 10 Lac

Total Income of FY 2010-11(excluding salary in arrears) was Rs. 5 Lac

Slab Rates

FY 2010-11 FY 2018-19
Up to Rs. 160,000 Nil Up to Rs. 2,50,000 Nil
Rs. 160,000 to Rs. 500,000 10% Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 500,000 to Rs. 800,000 20% Rs. 5,00,000 to Rs. 10,00,000 20%
Rs. 800,000 & above

 

30% Above Rs. 10,00,000 30%
Education Cess on Tax 3% Education Cess on Tax 4%

Step 1 : Calculate tax on Total Income of current year including salary in arrears 

Total Income – FY 2018-19 (incl. salary in arrears) Rs. 11,00,000
Tax on above –  

 

 

 

 

 

 

 

Rs. 148,200

Up to Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 12,500
Rs. 5,00,000 to Rs. 10,00,000 100,000
Above Rs. 10,00,000 30,000
Total Tax

Add: Education Cess @ 4% on above

142,500

5,700

 Step 2 : Calculate tax on Total Income of current year excluding salary in arrears

Total Income – FY 2018-19 (incl. salary in arrears) Rs. 10,00,000
Tax on above –  

 

 

 

 

 

 

 

Rs. 117,000

Up to Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 12,500
Rs. 5,00,000 to Rs. 10,00,000 100,000
Above Rs. 10,00,000 Nil
Total Tax

Add: Education Cess @ 4% on above

112,500

4,500

 Step 3 : Calculate difference of tax on Additional Salary taxed at higher rates

Tax Liability incl. of Additional Salary               [Step 1] Rs.148,200
Tax Liability excl. of Additional Salary             [ Step 2] Rs.117,000
Tax Liability on Additional Salary        [Step 1 – Step 2] Rs. 31,200

 Step 4 : Calculate tax on Total Income of Past year including salary in arrears

Total Income – FY 2010-11 (incl. salary in arrears) Rs. 6,00,000
Tax on above –  

 

 

 

 

 

 

 

Rs. 55,620

Up to Rs. 160,000 Nil
Rs. 160,000 to Rs. 500,000 34,000
Rs. 500,000 to Rs. 800,000 20,000
Rs. 800,000 & above Nil
Total Tax

Add: Education Cess @ 4% on above

 54,000

1620

 Step 5 : Calculate tax on Total Income of Past year excluding salary in arrears

Total Income – FY 2010-11 (excl. salary in arrears) Rs. 5,00,000
Tax on above –  

 

 

 

 

 

 

 

Rs. 35,020

Up to Rs. 160,000 Nil
Rs. 160,000 to Rs. 500,000 34,000
Rs. 500,000 to Rs. 800,000 Nil
Rs. 800,000 & above Nil
Total Tax

Add: Education Cess @ 4% on above

 34,000

1020

 Step 6 : Calculate difference of tax on Additional Salary taxed at actual rates

Tax Liability incl. of Additional Salary                [Step 4] Rs. 55,620
Tax Liability excl. of Additional Salary               [ Step 5] Rs. 35,020
Tax Liability on Additional Salary          [Step 4 – Step 5] Rs. 20,600

 Step 7 : Finally calculate relief available u/s 89 on Additional Salary

Difference of Tax on additional salary at higher rates      [Step 3] Rs.31,200
Difference of Tax on additional salary at actual rates      [ Step 6] Rs.20,600
Relief available u/s 89                                     [Step 3 – Step 6] Rs.10,600

 Note:  If you have received salary in arrears for more than one financial year then the above process shall be followed for each financial year separately.  

Conditions to be followed 

To avail benefit of relief u/s 89, you have to fill out a Form No. 10E, which can be filled online and has to submit to your employer.

Remember:  Filling of Form No. 10E is mandatory in case of claim of Relief u/s 89. You may be served a notice from Income Tax Department for non-filing of Form no. 10E and denial of relief u/s 89.  

DISCLAIMER: The views expressed in this article are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation by the author. The author does not accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

(For any queries, author can be reached at : cavrjsharma@gmail.com) ­­­

Author Bio

Qualification: CA in Practice
Company: Sharma Vikas and Associates, Chartered Accountants
Location: Delhi, New Delhi, IN
Member Since: 25 Jan 2019 | Total Posts: 6

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8 Comments

  1. sandeep Deshpande says:

    Sir,Last 4years I have not received salary of Rs.5 lac per year but this Fy 2019 -20 I have Received arrears of Rs.15 lac. Now how I Calculate tax

  2. AshuAgarwal says:

    One of my clients is a Bank Manager. He has received arrears of salary on an ad-hoc basis related to past years. The full amount is yet to be calculated by Bank which they will credit in the coming year only. Now the bank has not mentioned the AY/PY related to which the ad-hoc amount has been paid. In Form 16, the amount is shown as Other Income.
    Kindly guide how can I claim sec 89 relief in the above scenario

  3. BALAJI S says:

    Assessment Year 2020-21 2019-20 Total
    Salary Excluding Arrears 465895 64226 530121
    Add: Arrear Salary Accrual Basis 324502 324502
    Gross Salary 465895 388728 854623
    Deductions
    Tax On Employment 0 0 0
    Income Under Head Salary 465895 388728 854623
    less : Standard Deduction 50000 40000 90000
    Gross Total Income 415895 348728 764623
    Deduction Chapter VI A 9768 12870 22638
    Total Taxable Income 406127 335858 741985
    Tax On Total Income 0 0 0
    Add Edu Cess 0 0 0
    Total Tax 0 0 0

    HELLO SIR, PLZ CLEAR THIS DOUBT, IN THE ABOVE CALCULATION, WHETHER I WANT TO PUT THE VALUES WHICH ARRIVES BEFORE REBATE ON ” TAX ON TOTAL INCOME & EDU CESS ” OR AS “ZERO”
    WHY I PUT ZERO IS, TAX ON TOTAL INCOME WILL GET ZERO IN REBATE ITSELF. SO THERE IS NOTHING TO PAY IN BOTH YEARS.
    KINDLY CLEAR THIS DOUBT SOON SIR

  4. abhay says:

    if i get arrears in five installment in next five year of three year then how i bifurcate arrears in five installment as i am state govt employee.

  5. C N Mohan says:

    You have very well explained the taxability of Arrears of Salary and the calculation of relief u/s 89(1) of the IT Act. Can you further explain the taxability of Interest received on Arrears of Salary and its treatment while calculating the relief u/s 89(1)

  6. R K Chambers says:

    Dear Sir

    One of my client received arrears from 2004 to 2018 and he not filled income tax return form 2004 to till dated u/s 89(1) will be applicable this case

  7. Kanchan MALA verma says:

    Maturity AMOUNT of lic SAMARIDHI PLUS purchased on May 2011 SINGLE PREMIUM for Rs.one LAC with insurance cover Rs.1.25 LAC. Now on SEP 2018 I REPURCHASED the all the UNITS at Nav. Lic credited Rs 191507/- without any information of TDS. TO ME .WHEN I CHECKED 26AS LIC. DEDUCTED 1% YRS ON MATURITY PROCEEDS Rs.1935/- & SHOWN Rs 193442/- INCOME for the year 2018. U/S 194 DA Now my quarry is that initial income PAID for PREMIUM is EXEMPTED from income tax during filing ITR OR ALL INCOME IS EXEMPTED. WHOLE MATURITY AMOUNT HAS BEEN SHOWN IN 26AS INCLUIDING 26AD PLUS TDS. KINDLY ADICE ME.

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