Did You Filed ITR? Know How to Get Relief on Arrears under Income Tax Act

Introduction

Every Taxpayer is in a rush to file the Income Tax Return. If you have received salary arrears and want to get relief under Section 89(1) of the Income Tax Act, 1961, you must know how to claim it while filing the ITR. In case of receipt in arrears or advance of any sum in the nature of salary, relief under section 89 of the act can be claimed. In order to claim such relief, the assessee has to file Form 10E.

The Form must be filed before filing the Return of Income. For Indian taxpayers who receive wage arrears, Section 89(1) of the Income Tax Act, is a key clause. It talks about the potential for your tax burden to go up if you fall behind on your payments and have to make additional payments.

Relief provided by Section 89(1):

Income tax is applicable and calculated on the taxpayer’s total income earned or received during the financial year. Tax is calculated on the total income earned or received during the year. If total income includes any past dues paid in the current year, it may end up worrying about paying a higher tax on such arrears (usually, tax rates have gone up over the years plus the addition of past income increases your tax slab rate).

Relief under Section 89 can be claimed on any of the following received during a particular year:

a) Salary received in arrears or in advance

b) Premature withdrawal from Provident Fund

c) Gratuity

d) Commuted value of pension

e) Arrears of family pension

f) Compensation on termination of employment

Steps to Claim Relief on Arrears Under Section 89(1):

• Calculate the Total Income Including Arrears: Compute your total income for the year including the arrears received. This will help determine the tax liability with arrears.
• Calculate the Tax for the Year of Receipt: Calculate the tax payable for the year in which the arrears are received, considering the total income including arrears.
• Calculate the Tax for the Year of Receipt Excluding Arrears: Calculate the tax payable for the year in which the arrears are received, but this time, exclude the arrears from the total income.
• Calculate the Tax for the Years to Which Arrears Relate: Determine the tax liability for each year to which the arrears pertain. This involves recalculating your income tax for those previous years as if the arrears were received in those respective years.
• Calculate the Difference for Each Year:  For each year in which arrears were due, calculate the difference between the tax payable with and without including arrears in those years.
• Compute the Relief: The relief under Section 89(1) is calculated as

Example:

Suppose you received ₹1,00,000 as arrears in FY 2023-24 related to FY 2020-21 and FY 2021-22. You will:

1.Compute tax for FY 2023-24 with and without ₹1,00,000.

2. Recompute tax for FY 2020-21 and FY 2021-22 including the portion of arrears applicable to those years.

3. Calculate the difference in tax liabilities for those years.

4. Determine the relief by adjusting these differences against the tax for FY 2023-24.

By following these steps, you can effectively claim relief under Section 89(1) and reduce your tax liability on salary arrears.

Filing of Form 10E:

To claim the relief, you must file Form 10E online through the Income Tax Department’s e-filing portal.

Visit the [Income Tax e-Filing portal](https://www.incometaxindiaefiling.gov.in/) and log in using your credentials. After logging in, go to ‘e-File’ and select ‘Income Tax Forms’. Choose the Assessment Year 2024-25 and select ‘Form 10E’ from the drop-down menu. Complete the form with the necessary details including the assessment year, particulars of income, and tax computations for previous years to which arrears pertain.

Once all details are filled in accurately, submit the form online. Ensure that the filing is verified using Aadhaar OTP, EVC, or by sending a signed physical copy to the Centralized Processing Center (CPC) if not already e-verified. Maintain records of the arrears received, calculation sheets, and copies of Form 10E for future reference or in case of scrutiny by the tax authorities.

Conclusion:

From the financial year 2014-15 (the assessment year 2015-16), the income tax department has made it mandatory to file Form 10E if you want to claim relief under section 89(1). The income tax department has made it mandatory to file Form 10E if you want to claim relief under section 89(1). Understanding the provisions clearly and properly utilising Section 89(1) along with Form 10E can make a significant difference in managing tax liabilities, especially regarding salary arrears. This provision is a crucial safeguard for taxpayers, ensuring they receive fair treatment for delayed income.

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