Section 89 Relief on Salary Arrears
According to the Indian income tax system, Section 89 helps ease the burden for anyone getting a salary from a previous or next year in the tax year they are filing for. The purpose of this provision is to lower the taxes on salary that is received in a lump sum, to make sure everyone pays the same. This article briefs on what Section 89 relief on salary arrears is, if it can be used for salary arrears, how to calculate it, who can get it, and how to claim it. File your returns with TaxDunia.
What is Section 89 Relief?
Relief for receiving advance or arrears of salary in one payment is offered in Section 89 of the Income Tax Act 1961 to people employed on salaries. Salary arrears refer to monies paid in the current year for earlier services you provided. Because this contribution is taxable right away, it may move the taxpayer into a higher tax rate area, enhancing the total amount of tax Regulations pay.
Under section 89, the taxpayer may be charged as if the arrears were received in earlier years, and the extra tax charge is offset against the current year’s tax. It leads to you being refunded or your original tax payment being lower.
Eligibility for Section 89 Relief
You are eligible for Section 89 relief if:
- You have been given your due salary from the previous years or received salary in advance.
- All of the arrears you got in the year you received them have already been taxed.
- You can use past salary details to figure out your taxes with no extra payments left out.
- You submit Form 10E to the Income Tax Department and state how much you owe.
How to Claim Section 89 Relief?
This is how you apply for Section 89 relief due to salary arrears:
1. Collect Salary Details: Collect your salary records from previous years and gather the current year’s salary, including any arrears.
2. Figuring Out Tax Payable Excluding Arrears: Pay tax on your earnings from the current year without adding the arrears.
3. Add the taxes you already owe to the current year’s taxes: Include any overdue amounts in your calculation of the tax for the current year.
4. Find out how much tax you needed to pay for last year: For every earlier year, count up the tax owing, including the amount of arrears specific for that year’s income.
5. Figure out the Tax Relief you are eligible for: Refer to Section 89 when applying the formula.
Tax Payable = (previous year’s income tax + last year’s income tax + 1 year’s tax) – (previous year’s income tax) + (current year’s income tax, minus arrears).
6. File your Form 10E with the state: You have to file Form 10E if you wish to get relief under Section 89. Details of the arrears are listed, and relief money is also computed. The form should be filed via the internet before you complete your income tax return.
7. Report your claim under ITR: After submitting Form 10E, fill in the relief amount on the proper part of your Income Tax Return if you want a refund or to reduce your taxes.
Illustrative Example of Section 89 Relief on Salary Arrears
Let’s look at a real example to see how relief amounts are determined.
- 10,00,000 is the amount received for work in the Current Year of 2024-25.
- The salary arrears sent in the current year (for cases in 2022-23) are ₹3,00,000.
- For 2022-23, the salary without arrears amounts to ₹7,00,000.
Step 1: Tax on current year income including arrears (₹10,00,000 + ₹3,00,000 = ₹13,00,000)
Let’s assume the tax for ₹13,00,000 is ₹2,30,000
Step 2: Tax on current year income excluding arrears (₹10,00,000)
My tax payment for ₹10,00,000 is ₹1,50,000.
Step 3: Tax on previous year income including arrears (₹7,00,000 + ₹3,00,000 = ₹10,00,000)
Tax on earning ₹10,00,000 = ₹1,50,000
Step 4: Tax on previous year income excluding arrears (₹7,00,000)(₹7,00,000).
For every ₹7,00,000, you need to pay ₹1,00,000 in taxes.
Step 5: Relief Calculation
Relief = (Tax on ₹10,00,000 – Tax on ₹7,00,000) + Tax on ₹10,00,000 (present tax year) minus Tax on ₹13,00,000
[150,000 – 100,000] + 150,000 – 230,000
₹50,000 + ₹1,50,000 – ₹2,30,000 = ₹200,000 – ₹2,30,000 = -₹30,000
Since the result is negative, a refund is not owed, but this way, you will not pay too much in tax on your missed payments.
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The purpose of Section 89 relief is to stop taxpayers receiving lump-sum salary from facing extra taxes. Spreading out the taxes over time makes it easier and makes tax impact more fair for both companies and individuals. Anyone who receives either advance payment or arrears from their job, despite being salaried, should check if they qualify and then submit Form 10E along with their tax return.
