Arrears of Salary and Relief Under Section 89 (1) and Form 10 E. In the section on salary, we discuss
Section 89 (1) provides relief in tax for those receiving salary for earlier years. In cases where
this happens, Therefore, the Government has provided relief if there is an increase in your tax liability this year
due to such arrears.
In other words, Relief under this section 89(1) can be claimed where a person has received arrears of salary. Remember, salary is taxable only upon receipt by the individual. The amount of arrears will be mentioned in Form 16.
Have you received any advance salary or arrears? If so, you may be concerned about the impact of the same tax. Do I have to pay the total amount of tax? About the previous year’s tax calculation and so on? Here is what you need to know for those taxpayers who have such questions in mind.
By this time, you have already realized that income tax is calculated on the total income of a taxpayer for a given year. Income can be salary or family pension or another source of income. However, there may be situations where you have received an outstanding family pension or deferred salary in the current financial year.
In this case, an application can be made and the assessment officer can grant relief to the taxpayer. In short, income tax law ensures that there is equality in the rate of income tax slabs and thus, when a portion of the income received is not related to the current year, relief is given so that taxable income does not increase.
Things to keep in mind when claiming relief in arrears:
Income Tax Form 10E must be submitted online. Taxpayers who claimed relief in the last financial year but did not submit Form 10E will receive a notice of non-compliance from the Income Tax Department.
Salary is usually taxable when it is due or when it is received, but in case of arrears, they are usually declared from a later date, due to which when they are not in arrears
Submit Form 10E before filing your ITR.
When it comes to choosing the year of arrears assessment, you must choose the year of assessment where the arrears were received. For example, if arrears are found in F.Y 2019-20, the assessment year will be A.Y 2020-21.
A copy of Form 10E does not need to be attached to your tax return. However, you must file all the documents and keep them in your records.
Your employer may ask you to confirm the submission of Form 10E, but the employer is not required to submit this form.
Frequently Asked Questions:
Defence: I have to pay extra tax due to arrears of last year’s salary. What can I do?
To reduce the burden of additional taxes from arrears, Section 89 of the Income-tax Act has been introduced, in which if the total income of the previous year includes salary arrears, you can get tax relief under Section 89 (1).
Q. If I am not mentioned in the 16th format of the current year, can I claim the arrears of previous years?
Yes, you can claim relief by providing details of your arrears at the time of filing the return, even if it is not mentioned in Form 16.
However, Calculating Relief under 89 (1) is complicated and involves the following steps:
First – calculate the tax payable for the current year in which arrears are received including arrears less the tax payable including arrears.
Second – calculate the tax payable for the current year in which arrears are received excluding arrears less the tax payable including arrears.
Third – Calculate the Difference between the taxes payable in the year of receipt.
Fourth – calculate the tax payable for the year to which arrears relate excluding arrears less the tax payable including arrears.
Fifth – Calculate the tax payable for the year to which arrears relate excluding arrears less the tax payable including arrears.
And lastly, calculate the difference between the taxes payable in the year to which arrears relate.
The excess of difference in tax payable in the year of receipt versus the year to which arrears relate will give the amount of relief under 89 (1).
Also, Form 10 E needs to be filed if arrears are to be claimed.
Above all, Form 10E is an important form to save tax on income generated through arrears by applying the provision of Section 89(1).
In addition, It is mandatory for an assessee to file Form 10E for claiming relief under section 89(1).
After that, An assessee who fails to file Form 10E, will not be allowed the relief under Section 89(1). If the Income-Tax Return is filed without filing Form 10E and it is showing defective, the ITR should be revised after filing Form 10E.
In conclusion, The ITR can be revised before the end of the assessment year, i.e. 31 March 2021 for the financial year ended 2020-21