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)
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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.
Employee have not received any salary in FY 2019-20. Hence no deduction of Rs.50000/- was claimed.
Next year he received arrears for FY 2019-20. Whether Rs.50000 standard deduction is available or not ?
I would like to ask a doubt that IF I have received arrears on salary of FY 18-19 partly in FY 19-20 and Partly in FY 20-21 ,Can I file return( claim rebate) under section 89 for entire arrears amount in FY 20-21
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
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
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
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.
Dear Sir,
What if the arrear salary is less than 1lac, is there any special relief?
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)
Anything received from employer is a salary income. even though it is an interest from employer. so while calculating arrears it should be taken as arrears of salary itself. ie arrears received rs 100 and interest received rs 5 then you should constitute it arrears received rs 105. this is what logic 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
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.