Relief u/s 89(1) of the Income Tax Act

Relief u/s 89(1) of the Income Tax Act

What is Section 89(1)

It is a relief provided by the income tax department in relation to the amount received in advance or in arrears in the form of salary, which is related to any other financial year.
Basically, when any person receives a salary in arrears or in advance in any particular year, then there might be chances that their income will fall in the higher slab and be taxed at the higher rate, which would not have been the case if the same salary is received in their respective year.
Therefore, to avoid such higher tax due to timing differences, the income tax department has provided relief under section 89(1)
 

Steps to calculate the relief u/s 89(1)

Step 1 Calculate the tax payable on total income, including arrears of relevant previous year in which salary should have been received. (A)

Step 2 Calculate the tax payable on total income excluding arrears of relevant previous year in which salary should have been received. (B)

Step 3 Calculate the difference between A-B=(C)

Step 4 Calculate tax payable on Current year salary in which arrears of salary is received, including arrears. (D)

Step 4 Calculate tax payable on Current year salary in which arrears of salary is received excluding arrears. (E)

Step 5 Calculate the difference between D-E=(G) Step 6 Benefit u/s 89(1) is G-C.
 
Example
Mr X is a government employee, his current year, i.e., FY 2020-21 salary is INR 14,50,000/- Per annum and also receives arrears of salary for FY 2017-18 of INR 50,000.

Current FY
Financial Year for which Salary received
Total Income of Relevant Previous Year
Arrears
2020-21
2017-18
6,50,000
50,000

Now Mr X is eligible to avail of relief u/s 89(1) for the extra tax burden due to arrears of his salary; here below is the detailed calculation.
 
Step 1: Calculate the tax payable on total income, including arrears of relevant previous year in which salary should have been received. 7,00,000/- (650000+50000), total tax on 7,00,000 is 66,950/-
 
Step 2: Calculate the tax payable on total income excluding arrears of relevant previous year in which salary should have been received. (B) 6,50,000, total tax on 6,50,000 is 56,650/-
 
Step 3: Calculate difference between A-B=(C), 10,300/- (66,950-56,650)
 
Step 4: Calculate tax payable on Current year salary in which arrears of salary is received including arrears. (D) 15,00,000 (14,50,000+50,000), Tax on 15,00,000/- is 2,73,000
 
Step 5: Calculate difference between D-E=(G) (2,73,000-2,57,400= 15,600
 
Step 6: Benefit u/s 89(1) is G-C (15,600-10,300) = INR 5,300
 
Form 10E
  1. Every assesse is required to file Form 10E to avail the benefit of Section 89(1); this form must be file before the filing of Income-tax return.
  2. This is an online form; hence no physical documents are required to be submitted.
  3. This form is free of cost; therefore, no govt. charges need to be paid
  4. If the assesse fails to file form 10E, then he/she may receive an income tax notice for non-compliance.

 How to file Form 10E

Step 1 - Login to income tax website > Income tax Login

Step 2 - Go to e-file >>> income tax forms >>> File income tax forms >>>person without business/professional income
 


Step 3 - Select file now in form 10E populated on the screen.

 

Step 4 - Select Assessment Year and click on the continue button.
 


Step 5 - Select the option for which form 10E is to be filed; you can select multiple options if required.

 

Step 6 - Fill in the relevant detail related to the current year salary, previous year salary and arrears of salary in the required space.
 


Step 7 - Once you fill up all the three sections, the completed tick mark will be populated in all three, and the preview button will be highlighted, preview your submission, then submit.
 




For more information on this visit www.taxaj.com.


Posted by Pooja
Team Taxaj


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