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Claim Income Tax Relief under section 89(1) on Salary Arrears

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Introduction-

To save you from any additional burden of tax, due to receive your salary in arrears or in advance or you have received the family pension in arrears, scheme of tax relief under section 89(1) is allowed.


Filling of Form 10E-

It is mandatory to claim relief u/s 89 to file an online Form 10E on the Income tax department’s e-filing portal through login to your account. Otherwise, you can receive notice from Income tax department, if you have claimed relief under section 89(1) but you have not filed Form 10E online. The relief claimed as above has not been allowed on the ground that you have not filed form 10E online. So, it is necessary to furnish online form 10E to claim relief under section 89(1) under Income Tax Act.

How to calculate the relief under section 89(1) is as under:-
  1. Calculate the tax due in the current year by including the arrears in your total income.
  2. Calculate the tax due in the current year by excluding the arrears from your total income.
  3. Compute the difference of tax due computed as above in column 1 & 2 and let’s assumes the difference as ‘A’.
  4. Calculate the tax due in the year for which the arrears have been received by including the arrears in your total income.
  5. Calculate the tax due in the year for which the arrears have been received by excluding the arrears from your total income.
  6. Compute the difference of tax due computed as above in column 4 & 5 and let’s assumes the difference as ‘B’.
  7. At last subtract ‘A’ as calculated in column 3 from ‘B’ calculated in column 6 and you will get the relief amount under section 89(1).

For Example-
Mr. Samir’s total income in financial year 2017-18 is Rs. 10,00,000 per annum and he also received an arrear of salary of Rs. 2,00,000 for the financial year 2015-16. If his total income in financial year 2015-16 was Rs. 7,00,000. How to calculate relief under section 89(1)?

Answer-
Step-1
Particulars Total Income (Inclusive Arrears) for the financial year 2017-18 (A)

Total Income (Exclusive Arrears) for the financial year 2017-18 (B)

Salary 12,00,000 10,00,000
Income Tax 1,72,500 1,12,500
Cess 5,175 3,375
Total Tax Liability 1,77,675 1,15,875
Difference in tax amount X=(A-B) 61,800


Step-2
Particulars Total Income (Inclusive Arrears) for the financial year 2015-16 (C) Total Income (Exclusive Arrears) for the financial year 2015-16 (D)
Salary 9,00,000 7,00,000
Income Tax 1,05,000 65,000
Cess 3,150, 1,950
Total Tax Liability 1,08,150 66,950
Difference in tax amount Y=(C-D) 41,200


Step-3
Relief under section 89(1) (X-Y) = Rs. 61,800 - 41,200 = 20,600
Tax liability for the financial year 2017-18 is Rs. 1,77,675 - 20,600= 1,57,075/-
 
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