Claiming Relief u/s 89(1) on Salary Arrears in IT Act

What is Arrears of Salary?

As you know, the tax is calculated on the income you have earned or received in a financial year. In case you have any past dues on your income in the current year, then you must have been worried about paying the higher taxes on such a type of arrears. The reason for this is that the tax rates go up over the years, and also the addition of past income to your current income increases the tax slab rate.

To save you from this tax burden because there was a delay in receiving your salary, the laws of the tax allow you to get some relief under section 89, known as Arrears Relief. In short, you don't have to pay the extra taxes in case of delay in payment, and you will still be in the lower bracket of income tax slab rates.

As an employee, you have to meet certain criteria to claim the relief under section 89. You can receive the claim on the following:

Gratuity
Provident Fund withdrawal done prematurely
Salary received in advance or in arrears
Arrears of the family pension
Commuted value of the pension
Compensation after the termination of employment

How to calculate arrears of salary tax relief?

In case of the past salary receipt, advance salary, or receipt of family pension, you are allowed some tax relief under section 89 of Income Tax Act. Here are the steps by which you can calculate the tax relief all by yourself:

Step 1: Firstly, you have to calculate the total tax payable on the salary, including the additional salary in the year of receiving. The provided arrears will show in part B of the Form 16.
Step 2: Now, calculate the payable tax on the total income, except the additional salary in the year it is received. You can get the arrears with the help of the arrear document, which has been given by your employer. You have to subtract the amount of the arrears from the total salary, which includes the arrears. You can find this amount in the Form 16. You will be able to find the exact tax liability in the given year in case there are no arrears.
Step 3: Now, calculate the difference between the two above steps. The amount that comes is the additional tax liability, which is created by the arrears of income.
Step 4: Calculate the total tax payable on the income of the year in which the arrears relate, but you have to exclude the arrears.
Step 5: Now, calculate the tax payable on your total income of the year of arrears relating to. This time, you have to include the areas.
Step 6: Calculate the difference between steps 4 and 5. With the help of this step, you will be able to calculate the actual tax liability in any past year. It had all the arrears you had received in the same past year.
Step 7: Now, the difference between the amount at step 3 and step 6 is the amount of relief that should be allowed. But the only condition for the relief u/s 89 is that the amount at step 3 should be more than the amount at step 6. If that's not the case, then no relief is allowed.

You can also calculate the tax arrears on the website of Inxome Tax by following the steps mentioned there. After calculating the arrears of salary, you can enter them in the ITR.

How to file Form 10E?

To claim the benefits of relief u/s 89(1), you have to fill in Form 10E. On the online portal of e-filing, you will be able to file this form. You need to log in to your account, then follow the process accordingly.

You can file the 10E form by using an online method. Here are the steps that you can use:

Step 1: Log in to the official website of the Income Tax of the indian government by using the user ID and password.
Step 2: Once you are logged in, click on the e-file, then Income tax forms, and on the File income tax forms.
Step 3: The screen will appear. Click on the tab which says Persons not having any business/professional income, and then select the Form 10E.
Step 4: Then, on the other screen, select the years of the assessment and click on continue.
Step 5: Now, click on the Let's get started button and then start filling out the form.
Step 6. Now you have to select the relevant items related to the particulars of income, and then click on continue.
Step 7: Then, on the next screen, click on the links and then provide all the required details for all the sections.
Step 8: After you have filled in all the details in the Form 10E, click on the button Preview.
Step 9: On the preview page, you have to click on the e-Verify tab.

You will see a message on the screen that says the form has been successfully submitted. It will have the information about the transaction ID and the acknowledgement number of the receipt.

Income tax Notice for non-filing of Form 10E

If you want to claim the relief under section 89, then it is compulsory for you to file the Form 10E. The taxpayers who have claimed the relief under section 89 but didn't fill out the Form 10E, then they get a notice from the income tax department for the non-compliance. These lines say:

" The relief u/s 89 has not been allowed in your case, as the online Form 10E has not been filed by you. The furnishing of the Online Form 10E is required as per the section. 89 of the Income Tax Act."

Key points to remember while claiming relief on Arrears

Here are a few things that you should keep in mind while claiming the relief on arrears:

Form Submission: The Form 10E has to be submitted online on an e-filing portal. If the taxpayer has claimed a relief in the previous financial year but didn't file Form 10E, then they will receive a notice of non-compliance from the income tax department. Although until you submit the form, your income tax return will not be processed.
Tax on Arrears: The salaries are taxed when they are due or when they are received, but arrears are not taxed when they are due because they are generally announced from a back date.
Assessment Year: You have to submit Form 10E before you file the ITR. You need to fill in the assessment year in which you received the arrears. Let's say you received the arrears in the financial year 2017-18, then the assessment year will be considered as the FY 2018-19.
Documents: It is not necessary to submit a copy of the Form 10E along with your tax return. You need to maintain all the other documents and file them in your records.
Receipt of Form 10E: Although it is not required to submit the form to your employer, he can ask you for the proof of receipt of Form 10E.