Taxability Of Arrear Of Salary Relief U/S 89

August 16, 2016 - Income Tax Learning

(Last Updated On: March 9, 2017)

An employee may receive any arrear or advance salary or salary for more than 12 months etc. In such a case, the assessee might
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 have to pay higher taxes as the arrear /advance salary are taxed in the year of receipt of the same and not in the year in which
they are actually due. The dierence in tax liability in due year and in receipt year might be due to changes in the slab rates. For
this reason, the provision of relief u/s 89 comes in.

Relief is available under following cases:

Salary received in arrears or in advance;

Salary for more than 12 months in one financial year;

Family Pension being paid in arrears;

Gratuity;

Compensation on termination of employment; and

Commuted Pension

To calculate relief, the following steps should be taken:

Step 1: Calculate the tax due in the current year, rstly by including the arrears in your total income and then by excluding the
arrears from your total income. Then take the difference of these two figures and lets call the difference as X.

Step 2: Calculate your tax due (or the actual tax paid) in the year for which the arrears have been received, rstly by including the
arrears in your total income and then by excluding the arrears from your total income. Then take the dierence of these two
figures and lets call the difference as Y.

Step 3: The figure you get when you subtract X from Y is your relief amount.

This can be better understood with the help of the example below:

Suraj earned Rs. 15,00,000 p.a. in FY 2016-17 and also received an arrear of Rs. 3,00,000 p.a. for FY 2014-15. His total salary in FY
2014-15 was Rs. 6,00,000 p.a.

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 The table below explains the calculation of relief:

Tax liability for F.Y. 2016-17 Tax Liability for F.Y. 2014-15

Particulars
Salary inclusive of Salary without Salary inclusive of Salary without

arrears arrears arrears arrears

(1) (2) (3) (4)

Salary 18,00,000 15,00,000 9,00,000 6,00,000

Income Tax 3,65,000 2,75,000 1,05,000 45,000

Cess 10,950 8,250 3,150 1,350

Total Tax
3,75,950 2,83,250 1,08,150 46,350
Liability

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 Step 1:
Tax at (1) Tax 92,700
at (2)

Step 2:
Tax at (3) Tax 61,800
at (4)

Relief u/s 89 :
30,900
Step 1 Step 2

Tax payable :-
3,45,050
Tax at (1) Relief

Relief under section 89 = X-Y = 92700-61800=30900.

You may submit Form 10E for claiming such relief to your employer. Also, you must submit Form 10E online on the Income Tax
Website before ling the Return of Income. Your salary slips serve as proof of receipt of arrears and should be kept safely. One
important thing to note is that relief can only be claimed if tax paid is actually higher due to receipt of such arrears. If there is no
extra tax liability, relief is not allowed. In case of VRS Compensation being received by the employee no relief shall be granted
under Section 89 if he has claimed exemption u/s 10(10C) for Voluntary Retirement Scheme. An assessee can claim either
exemption under section 10(10C) or relief u/s 89 and not both together.

Author

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 Team Tax2win

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1 COMMENT

Ann

Reply

Uncommuted pension or any periodical payment of pension is fully taxable as salary. In

the above case Rs 9,000 received by you is fully taxable. Rs 10,000 starting the age of 70
years are fully taxable as well.

November 23, 2016 at 1:31 am

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