Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 24 views

    Arrears of Salary - Taxability & Relief Under Section 89

    Uploaded by

    SONA
    The document discusses taxability and relief for salary arrears in India. It defines salary arrears as outstanding salary from a previous period that is received in the current year. Salary arrears are taxable as income in the year received. Taxpayers can claim relief under Section 89(1) if paying taxes at a higher rate due to the lump sum amount. The document provides an example calculation of tax relief under Section 89(1) and notes that taxpayers must file Form 10E to claim this relief.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Arrears of Salary - Taxability & Relief Under Section 89

    Uploaded by

    SONA
    24 views4 pages
    The document discusses taxability and relief for salary arrears in India. It defines salary arrears as outstanding salary from a previous period that is received in the current year. Salary arrears are taxable as income in the year received. Taxpayers can claim relief under Section 89(1) if paying taxes at a higher rate due to the lump sum amount. The document provides an example calculation of tax relief under Section 89(1) and notes that taxpayers must file Form 10E to claim this relief.

    Original Title

    Arrears of Salary- Taxability & Relief under Section 89(1)

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses taxability and relief for salary arrears in India. It defines salary arrears as outstanding salary from a previous period that is received in the current year. Salary arrears are taxable as income in the year received. Taxpayers can claim relief under Section 89(1) if paying taxes at a higher rate due to the lump sum amount. The document provides an example calculation of tax relief under Section 89(1) and notes that taxpayers must file Form 10E to claim this relief.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    24 views4 pages

    Arrears of Salary - Taxability & Relief Under Section 89

    Uploaded by

    SONA
    The document discusses taxability and relief for salary arrears in India. It defines salary arrears as outstanding salary from a previous period that is received in the current year. Salary arrears are taxable as income in the year received. Taxpayers can claim relief under Section 89(1) if paying taxes at a higher rate due to the lump sum amount. The document provides an example calculation of tax relief under Section 89(1) and notes that taxpayers must file Form 10E to claim this relief.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Tools Blog Bytes Tax Q&A Get Started

    Quicko > Income Tax > Income from Salary

    Arrears of Salary- Taxability & Relief under


    Section 89(1)

    Sakshi Shah

    Income from salary Income Tax Relief 89(1) Salary Arrears

    Last updated on November 28th, 2022

    Arrears of Salary means the outstanding salary of the previous period received during the
    current year. There may be a revision in the Salary of an employee from retrospective effect
    or disputed salary released later on by the employer.

    INDEX

    What is arrears of Salary?

    Taxability of Salary Arrears

    Relief under Section 89(1)

    File Form 10E

    Calculation of Tax Relief under Section 89(1) for Salary Arrears

    Income Tax Notice for Non-Filing of Form 10E

    FAQs

    What is arrears of Salary?


    Arrears of Salary refers to any outstanding due of the previous period paid later on in a
    different assessment year. Further, salary may have been revised but increments can be
    paid at a later date or increment could be revised retrospectively. Therefore, in such cases,
    the differential amount paid in the subsequent period is known as salary arrears. The
    employer mentions it separately in the salary slips and part B of Form 16.

    Taxability of Salary Arrears


    Arrears of salary is treated as salary income in the ITR. They are taxable in the year of receipt.
    However, the taxpayer may be worried about paying taxes at a higher rate because of a
    higher tax bracket in the year of receipt or due to a change in the applicable slab rate. In
    such a situation the taxpayer can claim relief under Section 89(1).

    For Example:
    Arjun’s salary is INR 50,000 per month. His employer raised the salary to INR 60,000 per
    month in April 2020 effective from March 2020. Since the salary for March 2020 would
    already be paid, the additional INR 10,000 is paid in April 2020. This is called Salary Arrears.

    Relief under Section 89(1)


    A taxpayer receiving any portion of the salary in arrears or in advance or receiving profits in
    lieu of salary can claim relief under Sec 89(1) of the Income Tax Act.

    If the total income of a taxpayer includes any past salary paid in the current financial year
    and the tax slab rates are different in both years, this may lead to higher tax dues. Thus, the
    Income Tax Act allows relief u/s 89(1) to save the taxpayer from any additional tax liability
    due to delay in receiving income.

    Moreover, the employer calculates relief under Sec 89(1) and mentions it in Part B of Form 16.
    Further, the employee can claim relief under Sec 89(1) by filing Form 10E on the income tax
    website.

    File Form 10E


    It is mandatory to file Form 10E in order to claim the benefits under section 89(1). The
    taxpayer needs to file this form online on the income tax e-filing portal.

    Calculation of Tax Relief under Section 89(1) for Salary Arrears


    Let us understand the steps to calculate tax relief u/s. 89(1) with an example:

    Arjun’s salary is INR 4,80,000 (40,000 per month) for FY 2019-20. His employer raised the
    salary to INR 7,80,000 (65,000 per month) in April 2020 which is effective from March 2020.

    Therefore, the year of Receipt would be FY 2020-21 and the year of Accrual would be FY 2019-
    20. Hence, the arrears would amount to INR 25,000 for March 2020.

    1. Tax Liability on total income including arrears for the year of receipt

    Calculate tax liability on total income including salary arrears in the year of receipt
    Year of Receipt = FY 2020-21
    Total Income (including arrears) = INR 8,05,000
    Tax Liability = INR 76,440 1
    2. Tax Liability on total income excluding arrears for the year of receipt

    Calculate tax liability on total income excluding arrears in the year of receipt
    Year of Receipt = FY 2020-21
    Total Income (excluding arrears) = INR 7,80,000
    Tax Liability = INR 71,240

    3. Difference between Step 1 & Step 2

    Calculate the difference in tax liability between step 1 and step 2


    Difference in tax liability = 76,440 – 71,240 = INR 5,200

    4. Tax Liability on total income excluding arrears for the year of accrual

    Calculate tax liability on total income excluding additional salary i.e. salary arrears of the
    financial year to which arrears are related
    Year of Accrual = FY 2019-20
    Total Income (excluding arrears) = INR 4,80,000
    Tax Liability = NIL

    5. Tax Liability on total income including arrears for the year of accrual

    Calculate tax liability on total income including additional salary i.e. salary arrears of the
    financial year to which arrears are related
    Year of Accrual = FY 2019-20
    Total Income (including arrears) = INR 5,05,000
    Tax Liability = INR 14,040

    6. Difference between Step 4 & Step 5

    Calculate the difference between step 4 and step 5


    Difference in tax liability = 14,800 – 0 = INR 14,800

    7. Relief = Step 3 – Step 6

    Tax Relief u/s 89(1) = Step 3 – Step 6. If the amount in step 6 is more than step 3, no tax
    relief is allowed
    Tax Relief = NIL

    Note: The above calculation is as per the old tax regime.

    Additionally, you can calculate tax relief under Sec 89(1) by using the calculator of Income
    Tax Department – Relief under Section 89(1)

    Income Tax Notice for Non-Filing of Form 10E


    From the financial year 2014-15 (the assessment year 2015-16), ITD has made it mandatory to
    file Form 10E if you want to claim relief under section 89(1). Taxpayers who have claimed
    relief under section 89(1) but have not filed Form 10E have received an income tax notice
    1
    from the tax department.
    FAQs

    How to claim tax relief on Salary Arrears under Section 89(1)?

    How to save tax on Salary Arrears?

    When should I file Form 10E?

    PRODUCTS SERVICES API


    Income Tax ITR IT API
    For Salaried GSTR GST API
    For Traders TDS Return TDS API Get weekly dose of finance, tax & technology news
    directly to your inbox. Learn More
    GST Incorporation KYC API
    TDS API DOCS
    Your Email Subscribe

    RESOURCES TOOLS COMPANY


    Blog Income Tax About Us
    Calculator
    Help Center Contact Us
    Tax Calendar
    Bytes Careers
    Determine Tax
    Tax Q&A Audit
    Determine ITR
    Form

    FEATURED ON

    Product Hunt 289

    Terms & Conditions Of Use Privacy & Security

    You might also like