Amount paid by the employer in the head of the arrears of salary, have you ever thought of tax relief under section 89(1) on salary arrears: No,
Most of us don’t know what is relief under section 89.
Most of the employee says it “relief 89“.
This article is all about “How to calculate income tax on arrear salary”.
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Table of Contents
What is relief under section 89
Calculation of income tax depends on the income of the assessee, arrears is the part of the income which was received in the current years of last year.
This means the amounts which we suppose to get in the previous years, is getting in the current year.
The amount of arrear turns your income higher and it will drag you to a higher tax slab.
Although the amount received in the current years which is supposed to get in the previous year is due to the process of the employer, you are liable for the tax, so what would be the tax on salary arrears.
Also Read: What is Form 15G Form 15H?
In this scenario, the tax department allow the assessee a relief under section 89(1) of income tax act, to mitigate such hardship.
To avail the benefit of section 89(1), it is mandatory to fill a form 10e.
It is important to understand the claim under section 89 and fill the form 10E
How to calculate relief under section 89?
Relief under section 89 with example:
I like to share my personal example with you (How to claim relief under section 89(1)), along with step by step process of ‘how to calculate relief under section 89’ and to get the benefit of the reimbursement tax amount paid.
An amount of ₹ 1,00,000 in FY 2017-18 as arrears which, I was supposed to get in FY 2014-15.
Step1: I am working in the multinational company and my earning in FY 2017-18 including arrears is ₹ 5,28,000, tax computed for FY 2017-18 is ₹ 32,150.
Step2: on the other hand, IF my earning in FY 2017-18 excluding arrears is ₹ 4,28,000, tax computed for FY 2017-18 will be ₹ 22,350.
Step3: Subtracting the value of both the tax paid amount is ₹ 9,800.
let’s go back:
Step4: In FY 2014-15 my earning including arrears (if I received in 2014-15) is ₹ 3,51,000, tax computed for FY 2014-15 will is ₹ 18,780.
Step5: In FY 2014-15 my earning excluding arrears (which is actual) is ₹ 2,51,000, tax paid for FY 2014-15 is ₹ 12,780.
Step6: After Subtracting the value of both the tax paid amount is ₹ 6,050.
In the Final step 7:
Subtracting both the differences we get ₹ 3750
That is the amount we can get relief under section 89(1) of income tax act by filling form 10E.
Below Table simplify the example of relief under section 89
So, in this case, tax relief will be ₹ 3750.
What is Form 10E?
To claim the amount back under section 89(1) which was paid to due arrears, it is mandatory to fill the form without filling the fill you cannot claim back the amount. Form 10E allows you to enter all the income and deduction details of all years.
A procedure of filling Form 10 E
Filling of Form E is very easy, you can fill the form just by login into income tax portal click here:
Next step is to choose Form no 10E – Form from relief u/s 89 from the drop-down menu and fill the assessment years for which you need to fill 10E, select the submission mode and click continue.
Income Tax Notice for non-filing of Form 10E
From FY 2014-15 it is declared mandatory by the income tax department to fill Form 10E for claim relief under section 89(1) of income tax act.
The assessee who claim relief under section 89(1), but unable to fill Form 10E, will get income tax notice revealing:
“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 Online form 10E is required as per sec.89 of the Income Tax Act”
Step by step guide to fill form 10E annexure 1
Filling of Form 10E annexure 1 is very easy and will be submitted in a few steps only.
After selection of Form 10E you will get this:
There is 7 general instruction on the instruction tab button, it is recommended to read the instruction carefully.
After selecting Form 10E, maximum information is already fetched from PAN card, you only have to select the Annexure I, which is specified for “arrears or advance salary”.
Annexure I of Form 10 E
All you have to do is read every point twice and fill the actual figure from the above point no 1.
- In point 1 – You have to insert total income received (after all deduction u/s 80C, 10 & chapter VIA) in the current financial year (for which you are filling return).
- In point 2 – Whatever salary or advance you have received (in the current financial year) required to insert in this column.
- Point 3 – Shows you the total income received along with arrears.
- Point 4 – According to point 4 you need to enter the figure (tax on total income including arrears), you have to calculate according to your tax slab, sometime arrears amount drag you into different tax slab.
- In point 5 – You need to enter the figure (tax on total income excluding arrears), again according to your tax slab.
- You will get the difference figure automatically in the box of point no 6.
Point 7 “Tax computed with Table “A”
Table A is a separate calculation sheet which in result provides a figure which will fetch in point 7.
Table A is also required to fill out the information correctly:
- First, enter the previous years (you can add multiple years if required by pressing ‘ADD’ button) in the format (XXXX-XX) for example in you are talking about 2019-2020, you have to enter (2019-20).
- In the second column, you have to enter the amount of total Income in previous years 2019-20 (after all deduction u/s 80C, 10 & chapter VIA).
- You have to enter the amount of arrears or advance you received with respect to FY 2019-20 in the third column.
- Point number 4 is very tricky this column automatically add the amount of column 2 and 3, and you will get the final income received including arrears.
- In point 5 you have to enter the amount of tax according to the (tax slab) for the total income relevant to the previous year (column 2).
- In point no 6, you have to recalculate (according to tax slab) and enter the tax amount manually considering the arrears into account (amount mentioned in column 3).
- Column 7 provides you the difference of tax amount.
Many taxpayers get the arrear amount of different financial years.
Just click “ADD” button and insert the information of the relevant financial year in some patter explained above.
The Total difference tax amount (column 7) will carry forward to the above table annexure 1 column 7.
Finally, you will the amount of relief under section 89(1) in column 8 of Annexure 1.
After getting the figure from (column 8 of Annexure 1) and submission of the Form 10E, the final step is you have to enter the figure in column D6 of part ‘D’ – computation of tax payable – “relief under section 89(1), which is mentioned in the ITR 1 form.
Other annexures are also available in form 10E are required to fill as per requirement.
It is mandatory to fill form 10E calculator for claiming Tax relief under section 89(1) on salary arrears and before filling ITR form.
Section 89 Relief Calculator Excel for AY 2019-20
Section 89 Relief Calculator Excel for AY 2020-21
FAQ on Tax relief under section 89
Can I claim relief for an arrear of past years under section 89(1) if it is not mentioned in form 16 and shown as gross income of the current year?
Yes, you can all you have to keep the evidence like salary slip which reveals the amount of arrears received with your salary.
Is the filing of Individual Income tax returns mandatory to claim Relief u/s 89(1) of the income tax act? Suppose I received arrears of 2014-15 in 2017-18, is ITR mandatory for 2014-15? Or is relief allowed by filing form 10E?
No, but you have to disclose all your information for FY 2014-15 while filling Form 10E.
Are arrears of salary taxable?
If you fill form 10E and take benefit u/s section 89, you are free from taxation on salary arrears.
Can form 10e be revised?
Most of the taxpayers asking a question about ‘how to revise form 10e’? The answer is yes form 10e be revised but the process is a bit complicated and difficult to understand, it is better to calculate the figure before punching in form 10E. The excel based calculation is available for you to understand section 89(1).
What is arrears in salary?
As per the legal point of view salary arrears is the amount which was unpaid to the employee by their employer on the particular month and paid after some time. In other words, the money that is earned by you and should have been paid to you earlier but due to some reason it is still outstanding when you get that outstanding money in your salary then that amount is considered as salary arrears.
Can I file form 10e after filing my tax return?
It is mandatory to file Form 10E before filing your income tax return, If you have filed your ITR and submitted it, the Income tax department won’t allow you to fill form 10E afterward, because the effect of section 89 is missing and it would not be reversed, all you have to do is revise your Income-tax return.