Income Tax Relief Under Section 89: What You Need to Know

Navigate the complexities of income tax relief under Section 89. Find essential information on eligibility and application to enhance your financial well-being!

Trending News Fox, News Desk Team, Kolkata

Edited by Saibal Bose

Income Tax Relief Under Section 89: What You Need to Know

Section 89 of the Income Tax Act, 1961, provides relief to taxpayers who receive salary arrears or advance salary in a financial year, leading to a higher tax liability. This section ensures that taxpayers do not pay excessive taxes due to changes in income distribution over the years.

Who Can Claim Income Tax Relief Under Section 89?

You can claim relief under Section 89 if you have received:

1. Arrears of salary: Salary related to previous financial years received in the current year.
2. Advance salary: Payment for future periods received earlier.
3. Gratuity: Received on retirement or termination of employment.
4. Pension arrears: Paid after retirement for previous periods.
5. Other payments: Like compensation on termination of employment or voluntary retirement scheme (VRS) proceeds.

How Does Section 89 Work?

Relief is calculated by:

1. Spreading the arrears or advance income across the years it pertains to.
2. Calculating tax liability for each year (with and without the arrears/advance).
3. Comparing the tax difference and determining the relief amount.

Formula for Relief Calculation:
The relief amount = (Tax on total income including arrears/advance) − (Tax recalculated as if arrears/advance were spread over previous years).

Steps to Claim Relief Under Section 89

1. Calculate Tax for Relevant Years: Determine the tax liability for each year affected by the arrears/advance salary.
2. File Form 10E: Submit Form 10E online via the Income Tax e-filing portal. This is mandatory for claiming relief under Section 89.
3. Verify Form Submission: Ensure the details in Form 10E match your income and TDS certificates.
4. Claim the Relief in ITR: Reflect the relief amount in your Income Tax Return (ITR) under the “Tax Relief” section.

Filing Form 10E

1. Log in to the Income Tax e-filing portal.
2. Navigate to the “e-File” menu and select Prepare & Submit Online Form (Other than ITR).
3. Choose Form 10E and fill in details of income, arrears, and tax calculations.
4. Submit the form before filing your ITR.

Documents Required

• Salary slips or payment records.
• Form 16 issued by your employer.
• TDS certificates.
• Computation of tax liability for relevant years.

Important Points to Note

1. Relief under Section 89 can only be claimed in the year the arrears/advance is received.
2. Filing Form 10E is mandatory; failing to do so may result in disallowance of the claim.
3. Ensure all calculations are accurate and supported by documents.

Example

Suppose you receive salary arrears of ₹3,00,000 for FY 2021-22 in FY 2023-24:

1. Calculate the tax liability for FY 2021-22 with and without the arrears.
2. Calculate the tax liability for FY 2023-24, including the arrears.
3. Compare the differences to determine the relief amount.

Claiming relief under Section 89 ensures fair taxation and prevents undue financial burden due to lump-sum payments. If you’re eligible, take the necessary steps to claim your relief and optimize your tax liability!

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