Here’s all you need to know about the Relief when salary, etc. is paid in arrears or in advance:
There are cases wherein an employee, may get salary arrears in the current year, for any past year/s due to pay revision. And when this additional arrear is added with the current year’s income, the tax payable for the current year could be higher because of the change in one’s income tax slab rate to a higher tax slab.
Hence, the Government has introduced Section 89 under the Income Tax Act which comes as a relief in this context, as this provision allows a tax deduction for the additional tax burden on employees receiving salary arrears.
As per Section 89(1), tax deduction/relief is provided by recalculating tax for the year in which arrears are received and the year to which the arrears pertain; and the taxes are adjusted in the year in which they were due. In other words, if the taxpayer is required to pay any additional amount of tax (in the year of receipt) than what he would have originally paid had he received the money in the year(s) that he was supposed to receive it, such additional tax can be reduced from the tax payable.
Let’s discuss further on this…
How to calculate Tax Relief on Salary arrears under Section 89(1)?
Below are the steps to calculate the tax relief amount:
- Step 1 – We need to calculate the tax liability on the total income, including the salary arrears, in the year in which it is received.
- Step 2 – Calculate the tax liability on the total income, excluding the salary arrears, in the year of receipt. This step gives us the tax payable amount, had there been no arrears received in the current year.
- Step 3 – Calculate the difference in tax liability as Step 1 & Step 2. This would be the tax on the additional salary included in the total income.
- Step 4 – Calculate the tax liability on the total income, including the arrears amount received, for the year to which the arrears relate.
- Step 5 – Calculate the tax liability on the total income, excluding the arrears amount received, for the year to which the arrears relate.
- Step 6 – Calculate the difference between the amount calculated as per Step 4 and Step 5. This gives us the actual tax liability for the past year for which arrears are received in the current year.
- Step 7 – The excess amount at Step 3 over Step 6 will be the tax relief allowed under section 89. In case, there is no excess, i.e., if the tax calculated as per Step 3 is less than that calculated in Step 6, the employee need not apply for relief under section 89, i.e., no relief will be allowed.
You may also visit the income tax website to calculate the Relief under Section 89. Here is the link – https://www.incometaxindia.gov.in/Pages/tools/relief-under-section-89.aspx#
Cases where Section 89 applies?
Relief under Section 89(1) is available in the following cases:
- Salary received in arrears or in advance [Rule 21A(2)];
- Gratuity received for past services [Rule 21A(3);
- Compensation on termination of employment [Rule 21A(4)];
- Payment of commutation of pension [Rule 21A(5)]
How can you claim the tax relief calculated under Section 89?
In order to claim the relief under section 89, one must file Form 10E available in the income-tax portal (in the new e-filing portal, log in and on Dashboard, go to e-File > Income tax forms > File Income Tax Forms). Filing of Form 10E is mandatory. In the case of non-filing of Form 10E, the Income Tax Return will be processed but the relief claimed u/s 89 will not be allowed, i.e., the relief under section 89 of the Income-Tax Act will be allowed only if the Form 10E is filed before filing of income tax return.
Let us understand this calculation with an example:
Suppose, Ms. Nisha received Rs. 1,50,000 as arrears of pay in the financial year 2020-21 for the FY 2019-20. Under normal circumstances, she would have paid a tax of Rs. 1,10,760 on her income of Rs 9,70,000 for FY 2020-21. However, after the inclusion of the arrears of Rs. 1.5 lakh, her tax liability increases to Rs. 1,54,440.
Further, for FY 2019-20, she had paid a tax of Rs. 75,400 on her income received which was Rs. 8 lakhs. Had she received the arrears of Rs 1.5 lakhs in the year they were due, the tax liability would have been Rs. 1,06,600.
Using this data, the tax relief available to Ms. Nisha is computed below:
| Sl No. | Particulars | Amount |
| 1 | Tax payable on the total income for FY 2020-21, including the arrears | 1,54,440 |
| 2 | Tax payable on the total income for FY 2020-21, excluding the arrears | 1,10,760 |
| 3 | Difference between Step 1 & Step 2 | 43,680 |
| 4 | Tax payable on the total income for FY 2019-20, including the arrears | 1,06,600 |
| 5 | Tax payable on the total income for FY 2019-20, excluding the arrears | 75,400 |
| 6 | Difference between Step 3 & Step 4 | 31,200 |
| 7 | Amount of relief = Step 3 – Step 6 | 12,480 |
Note: If the tax payable as per Step 3 (tax payable in the year of receipt) is lower than the tax payable as per Step 6, meaning if there is no excess tax, then NO RELIEF will be allowed.
The author is a tax and finance consultant and can be reached out at [email protected] for any queries.
Author Bio
I received the salary arrears of fy 2019-20 in fy 2022-23 and 2023-24. I got the tax relief in fy 2022-23. how can I get the tax relief in fy 2023-24 and how to fill form 10e this year.
In FY: 2021-22, Total salary received is Rs. 8,97,926.00. on which arrears of Fy: 2019-20 is Rs. 1,35,069 and arrears of Fy: 2020-21 is Rs. 2,77,593.00.
In Fy : 2021-22 tds was deducted is 54,543.00
I got 80c deductions are 3,00,000.00 in Fy: 2021-22 and 2020-21.
After filling the form 10E and calculating the amount eligible under section 89, I am not able to find a schedule under which I can show it in my ITR2.
Can some one help with the schedule or screenshot, where I can claim the amount for tax relief under 89 while filing the ITR?
Hi,
I have received an arrears of about 11 lakhs in FY 2021-22. Due to the arrears, my total taxable income has crossed 50 lakhs due to which I have to pay 10% additional surcharge. My tax bracket was 30% for all the years for which I have received the arrears. Can I claim the relief U/S 89 so that I do not have to pay the additional 10% surcharge on the arrears?
Thanks,
Pallav Jain
Suppose I receive arrear for FY 2019-20 and 2020-21 in the FY 2021-22. Can I claim relief us 89 if my itr for FY 2019-20 and 2020-21 have “NOT” been filed?
If the tax brackets are same for the years there won’t be any difference and hence no relief.
Sir,
Kindly clarify. Have received arrears for FY 18-19,19-20,20-21 in the year 21 April. My taxable income for FY 20-21 is 275360 for 19-20 is 482500 and FY 18-19 is 385880. My doubt is can transfer the whole arrear amount I received to the FY 20-21, instead of transferring to the year to which they relate to.
No. you cannot. You have to calculate the tax relief for each year you have received the arrears, as I explained to you through the example.
I don’t see any email id.
You have to calculate the arrears amount for each of the previous years that you have received. I can help you out with this as well with ITR filing. We can connect over call or email to discuss this and my fees.
[email protected]
Dear sir,
Please explain how to calculate tax relief u/s 89 if the arrear amount paid in this FY i.e 21-22 is of last 04 years i.e FY 17-18, FY 18-19, FY 19-20 & FY 20-21.I request you to kindly mai at the above given mail id
Thanking you
B Srinivasa Rao
Sure
If Salary advance taken & not paid in the FY then how it is calculated,
Advance salary will be added to the salary income in the year of receipt.
Relief u/s 89 can be claimed for receiving any portion of salary as an advance salary. For understanding how to calculate the tax benefit under section 89, you can refer to the detailed calculation explained in the article.
Sir,
Is this Section 89 relief applicable even under new tax regime?
Please clarify.
Hi,
Relief under Section 89(1) of the Income Tax Act, 1961 is allowed under the new tax regime as well.
Thank you very much.
Can I claim a part of salary arrears (not arrears in full) as 10E?
Is this Section 89 relief applicable even under new tax regime?
There’s a slight correction in the table in the given illustration –
Sl No 6 – Difference between the tax payable as per “STEP 4 & STEP 5” – 31,200