Relief u/s 89
Relief under Section 89: How to Claim Tax Benefits on Arrears
In this post, We will discuss the tax relief provided under Section 89 of the Income Tax Act, including who is qualified, how the Relief works, and how to submit Form 10E. Whether you have received pay arrears, a pension, or other income in advance, this post will guide you through the process of requesting Relief and ensuring your taxes are calculated correctly.
Let’s look at each section in detail:
What is Section 89 of the Income Tax Act?
Individuals receiving salary, family pension, or other income in advance or arrears throughout the financial year are eligible for tax relief under Section 89 of the Income Tax Act. This Relief helps balance the impact of potentially higher tax rates on their total annual income.
Individuals wishing to claim this Relief must submit Form 10E using the e-filing system and income information. Anyone who has registered on the portal is eligible to apply, as long as they have received their income, profit instead of salary, or family pension in advance or arrears.
Eligibility and document requirements may vary based on individual circumstances and current tax rules. For specific guidance, it’s best to consult a tax professional or review the official guidelines from the Income Tax Department.
What is Relief under Section 89?
Employees must file Form 10E online via the income tax e-filing website to get Section 89 tax relief. This form is required to obtain relief for arrears received in the current year that apply to previous tax years.
Section 89(1) explains how the relief is calculated, which involves recalculating taxes for both the year the arrears were received and the original years they relate to and adjusting the taxes accordingly. Remember to file Form 10E before submitting the Income Tax Return.
Understanding Salary Arrears
Salary arrears refer to any unpaid earnings from a previous period that are settled in a subsequent assessment year. This could result from delayed salary modifications or retrospective increments.
As a result, the payment difference for the next period is categorised as salary arrears. Employers often include this on pay slips in Part B of Form 16.
Who Can Claim Relief under Section 89?
Below is a breakdown of who can claim relief under Section 89:
- Salaried Employees: : Individuals who receive a salary in arrears or advances, such as delayed increments, bonuses, or promotions, may seek a claim under Section 89.
- Pensioners: Retired employees who receive pension arrears may claim relief if the payment changes their tax liability in the year of receipt.
- Family Pension Recipients: Family members receiving family pension arrears can also claim relief under Section 89.
- Income from Other Sources: Other income types that are taxed in arrears or advance and meet the criteria can also be eligible for Section 89 relief.
Calculation of Relief under Section 89
Technology has made it easier to calculate Section 89 relief for salary arrears. To calculate it, follow these simple steps:
Step 1: Calculate tax on total income, including additional salary or arrears, in the year it is received.
Step 2: Calculate the tax on total income, excluding the additional salary in the year it was received.
Step 3: Subtract the result of Step 2 from Step 1 to calculate the additional tax due for arrears.
Step 4: Calculate tax on total income (excluding arrears) in the year the arrears happened.
Step 5: Calculate tax on total income (including arrears) for the relevant year.
Step 6: Subtract Step 4’s result from Step 5 to calculate the tax difference for the arrears year.
Step 7: Compare Step 3 and Step 6:
- If Step 3 is greater than Step 6, the excess is the tax relief allowed.
- If Step 6 is more than Step 3, no relief is allowed.
Once you calculate the relief, file Form 10E on the Income Tax Department’s website to claim it.
Filing for Relief under Section 89 with Form 10E
To claim Relief under Section 89(1) for pay arrears, you must file Form 10E with the Income Tax Department before submitting your tax return. Here’s a simplified way to fill Form 10E online:
- Open www.incometaxindiaefiling.gov.in.
- Click the “Login” button in the top right corner. Please enter your User ID (PAN or Aadhaar) and password.
- Go to E-file > Prepare and submit the online form after logging in.
- Select Form 10E from the list of forms, then choose the assessment year and click Continue.
- Select the applicable items from the annexures list.
- Verify your details, then enter your total income, arrear income, etc.
- Double-check all entered information. Click Save, then proceed to submit the form.
And that’s it! Once Form 10E is submitted, you can file your income tax return.
Things to remember when Claiming Relief
Keep the following points in mind while claiming relief on arrears:
1. Form 10E Filing:
- All taxpayers who claim relief must file Form 10E online.
- A non-compliance notification is issued if Form 10E is not filed.
- The return processing remains on hold until you submit form 10E.
2. Taxation of Arrears:
- Your regular pay is taxed when it is paid or received.
- Arrears are taxed on a back date rather than when they are due.
3. Arrears Assessment Year:
- You must file Form 10E before submitting your ITR.
- Select the assessment year based on the receipt of arrears.
- For example, FY 2022-23 arrears are transferred to AY 2023-24.
4. Form 10E Documentation:
- You do not need to include Form 10E with your income tax return.
- You must file and maintain all documents in your records.
5. Employer Confirmation:
- Your employer may request confirmation of Form 10E.
- Submission to the employer is optional.
Conclusion
Section 89 of the Income Tax Act of 1961 is a key provision for dealing with the taxation of arrears or advance salary payments. This provision allows taxpayers to adjust their tax liability when they simultaneously receive income from many years. Section 89 promotes justice in the tax system by distributing the tax burden and ensuring taxpayers are not unfairly taxed due to lump sum payments.
We have reached the end of this post. Please post your questions in the comments section below.
FAQs
1. Can I file Form 10E after I have filed my income tax return (ITR)?
Ans: No, Form 10E must be filed before filing your ITR to get the tax relief provided by Section 89(1).
2. Who can submit Form 10E?
Ans: Individuals who have registered on the e-filing platform can file Form 10E to obtain relief under Section 89 of the Income Tax Act, 1961.
3. Can I download and complete Form 10E offline?
Ans: You cannot download Form 10E. It’s totally online. Hence, it must be submitted after logging into the e-filing portal.
