sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
« Indirect Tax »
 CBDT notifies new I-T return forms
 Here are the key changes in tax rules to come into effect from today
 GST revenue growth in 2018-19 to match last 10 years’ indirect tax growth, says SBI report
 Things You Should Know Before Filing Your Income Tax Returns (ITR)
 All education loans do not get income tax benefits
 FM Arun Jaitley to focus on direct and indirect taxes
 Income Tax For Individuals – Assessment Year 2019–20
 States set separate dates to implement e-way bill
 What are direct and indirect taxes?
 Indirect transfer conundrum continues
 We expect significant changes in income tax slabs, say taxpayers

Section 89 of the Income-tax Act
May, 22nd 2015

An employee’s tax liability can increase when she receives arrears. However, one can get some amount of relief under section 89 of the Income-tax Act, 1961. Here is a look at what is covered under this section, and how one can avail of the relief.

WHAT IS SECTION 89?

The receipt of arrears can lead to a higher tax incidence in the hands of the employee as the amount gets taxed in the year of receipt. Had the employee received this amount in the year(s) that it pertained to, the additional tax would have been staggered over the years, instead of being paid as a lump sum. This is where section 89 comes in.

This section, titled “relief when salary, etc., is paid in arrears or in advance”, comes under chapter VIII (Rebates and Reliefs) of the income-tax Act. According to it, if you get salary in arrears or advance in a financial year due to which your total income for the year increases, which in turn increases your taxable income, you can claim for relief under section 89. According to this section, arrears includes salary/family pension paid in arrears/advance (additional salary), certain part of gratuity, compensation received on termination of employment, and commuted pension. The rules apply to both government and private sector employees.

HOW TO CLAIM RELIEF

Firstly, you should calculate tax for the current year on income including the arrears or compensation. Then calculate the tax for the current year on the income excluding the arrears. After that, subtract these two figures; let us call this figure A. The next step is to calculate tax for the year in which the arrears should have been received—once with the arrears, and then without. Again subtract these two figures; let us call this figure B.

To get the amount of relief that you can receive under section 89, subtract figure A from figure B.

Here’s an example. Say, you earn Rs.10 lakh a year in financial year (FY) 2014, and receive an arrear of Rs.4 lakh for FY13. Your total salary in FY13 was Rs.8 lakh. For FY14, without the arrears, your tax liability will be Rs.1.34 lakh, and with arrears (total salary of Rs.14 lakh), it will become Rs.2.57 lakh. This is a difference of Rs.1.23 lakh. Now, we have to calculate the tax incidence for FY13, on your salary of Rs.8 lakh. Without the arrears, you paid a tax of Rs.92,700, and with the arrears (total salary of Rs.12 lakh) you would have paid Rs.1.95 lakh as tax. This is a difference of Rs.1.03 lakh. So, the relief that you can get under section 89 is Rs.20,600 (Rs.1.23 lakh - Rs.1.03 lakh).

You will have to fill up Form10E with these details and then submit it to your current employer to claim the relief. Keep your salary slips handy to provide as proof of receipt of the arrears. But do keep in mind that only if the tax paid is higher will you be able to claim this relief. If you do not have to pay excess tax due to the arrears, then you do not get the relief.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Vision

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions