How to calculate Relief under section 89 for salary arrears in tax return ?

Life Effected - Nilesh Bhole

When you get arrears of one year in proceeding years , you can claim relief for the same .Such arrears can be that of salary , pension , gratuity etc

How we do it in tax returns will be demonstrated here

Basically the relief is for the extra tax burden that you are required to pay when the arrears instead of taxed in the year they are due are taxed rather in the year they are given !

The formula for relief is

(Tax on total income inlcuding arrears - tax on total income excluding arrears (Step 1 ) (For the year in which arrears recieved ) (X1-X2)

Minus

Tax on total income inlcuding arrears - tax on total income excluding arrears (Step 2 ) (For the year in which arrears due ) (Y1-Y2)

Simple way of calculating tax relief under section 89 Step - 1

Let this be X

Tax on total income inlcuding arrears - tax on total income excluding arrears (Step 1 ) (For the year in which arrears recieved ) (X1-X2)

Let this be X

Step - 2 - Calculating difference in tax with /without arrears for years for which arrears received

Let this be Y

Tax on total income inlcuding arrears - tax on total income excluding arrears (Step 2 ) (Of the year to which arrears belong ) A1-A2 Repeat step 2 , in case there are multiple years for which arrears is recieved i.e B1-B2,C1-C2

Y = A1-A2 + B1-B2 + C1-C2 +D1-D2

Step 3 - Relief under section 89 - (Step 1 - step 2 ) = X - Y

(Note that x will always be greater because arrears on account of A,B,C,D get added to X i.e year in which tax computed

Note that in the return we simply claim this figure as relief from tax under section 89 (This is not only for salary arrears but also other eligible arrears as mentioned in section 89 )Most important is to therefore remember that assessee after claiming tax relief benefit under section 89 for arrears must not forget to upload form 10 E online in the income tax website else his request for relief under section 89 is not allowed during intimation assessment

Lets do this with a live case

For AY 2015 16 I.E PY 2014 15 ,nilesh is a resident indian

Scope of taxable income For AY 2015 16

Taxable income with arrears ( Calculation )( X1)

Salary income from FY 2014 15 = 744522

Arrears received from FY 2013 14 = 75830 Rs Therefore total salary income considering arrears = 820352

House property income (loan interest for self offucpied house ) = -83424 Hence gross total income = 736928 Savings under 80 C = 150000

Hence taxable income = 586930 (Considering arrears ) Tax as per slabs = X1 = 43658

Taxable income without arrears ( Calculation )( X2)

Gross total income = 744522 -83424 =661098 Taxable income = 661098 - 150000 = 511098

Tax as per slabs = X2 = 28036

Lets do The first part Step - 1

X= Tax on total income inlcuding arrears - tax on total income excluding arrears (Step 1 ) (For the year in which arrears recieved ) = X1-X2

=43658 - 28036 = 15622

Step 2 - For the years of which arrears was received

Here only , it was received for year AY 2014 15

Now for AY 2014 15 , Total income from FY 2013 14 = 508621 Arrears due = 75830 Rs

Total income considering arrears =Y1 = 584450 Tax as per slabs =47639

Total income excluding arrears = Y2= 508621 Tax as per slabs = 32676

Lets do the second part

Step - 2 - Tax on total income inlcuding arrears - tax on total income excluding arrears (Step 2 ) (Of the year to which arrears belong ) (Repeat step 2 , in case there are multiple years for which arrears is recieved )

= A1-A2

= 47639 -32676 = 14963

For no other years arrears received . therefore B,C,D = 0

Therefore Y = A+B+C+D

= 14963 +0 + 0

Hence ,Relief under section 89 = X-Y = Step 1 - Step 2 = 15622 - 14963 = 659

This is put as single figure in the return <photo id="5" /> So , in present year whatever be the tax liability we can claim tax relief under section 89 on salary arrears for Rs 659 Rs (Just one entry ) However before uploading the return , let us first submit the form 10 E online filling the same figures

Once , the form 10 E has been uploaded , then we can upload the return and evalidate the acknowledgement Note , if form 10 E is not uploaded online , then the relief under section 89 is not considered (See attached pictures to see how the form 10 E is to be submitted )

Post form 10 E is uploaded online , then the return can be submitted and acknowledgement generated and subsequently evalidated

Humble regards ,

Amlan Dutta