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    What is Section 89(1) of the IT Act?

    Jul 25, 2023
    4 min | Views 2412

    Under Section 89(1) of the IT Act, relief protects salaried taxpayers from the additional tax burden when they receive delayed payment from their employers.

    Simply put, it offers relief to taxpayers when past salary arrears put them in a higher tax bracket and increase their tax liability.

    Also Read What is Income Tax Return?


    What are the Eligibility Requirements to Claim Section 89(1)

    Relief?

    Section 89(1) tax relief can only be claimed on the following payments received in a particular year-

    ● Salary arrears or advance
    ● Gratuity
    ● Family pension arrears
    ● Commuted value of pension
    ● Premature Provident Fund (PF) withdrawal
    ● The compensation received on employment termination

    How to Calculate Tax Relief on Salary Arrears under Section 89(1)?

    Let’s try to understand how the relief on income tax under Section 89(1) on salary arrears is calculated-

    For FY 2022-23 (AY 2023-24), Ms Anvita's total income is ₹9 lakhs, and she received ₹2 lakhs as salary arrears from her employer for FY 2021-22 (AY 2022-23). However, her total income for FY 2021-22 was ₹5.5 lakhs.

    Here’s how her tax relief under Section 89(1) will be calculated-


    (1)

    Total income for FY 2022-23

    ₹11 lakhs (₹ 9 lakhs income + ₹2 lakhs arrears )

    (2)

    Income tax on ₹9 lakhs income

    ₹148,200 (As per the tax rates for FY 2022-23)

    (3)

    Tax on income for FY 2022-23, excluding arrears

    ₹96,200 (Tax on ₹9 lakhs)

    (4)

    Difference between income tax on salary + arrears (2) and only salary (3)=

    ₹52,000

    (5)

    Tax on total income for FY 2021-22, including arrears

    ₹65,000 (Tax on salary of ₹5.5 lakhs received in FY 2021-22 + arrears of ₹2 lakhs)

    (6)

    Tax on income for FY 2021-22, excluding arrears

    ₹23,400 (Tax on ₹5.5 lakhs)

    (7)

    Difference between income tax on salary + arrears (5)and only salary (6)

    ₹41,600

    (8)

    Section 89(1) Tax Relief

    ₹10,400 [By deducting (7) from (4)]

    How to Claim Section 89(1) Tax Relief?

    The arrears received by salaried employees are mentioned on Form 16 (Part B). To claim tax relief U/S 89(1) on these arrears, taxpayers should mandatorily file Form 10E. Follow these steps to file Form 10E online-

    • Use your ID and password to log in to your account on www.incometax.gov.in

    • Click on e-File -> Income Tax Forms -> File Income Tax Forms

    • On the following page, select ‘Persons not having any business/professional income’ and choose Form 10E

    • On the next page, choose the assessment year, click on Continue -> Let’s Get Started

    • Select ‘Arrears Salary/Family Pension [Annexure 1]’ from the list of available payments

    • You'll be redirected to Form 10E, where you must provide personal information and salary arrears information before completing the online verification

    • Click on the ‘Preview’ button after filling out the form

    • On the preview page, complete e-verification, and your Form 10E will be successfully submitted

    Claim Tax Relief on Salary Arrears Under Section 89(1)

    Section 89(1) can come in handy in cases where past salary arrears increase your tax liability by putting you in a higher tax slab. If you have received such arrears, follow the above steps to file Form 10E and claim tax relief.

    Alternatively, you can consult with a tax advisor who can guide you through filing Form 10E to claim tax relief U/S 89(1).

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

     

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