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“.
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.
Income Tax Section 89(1) 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 (1) and fill the form 10E
How to calculate relief under section 89?
Relief under section 89 with example:
I like to an 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 Rs. 1,00,000 in FY 2020-21 as arrears which, I was supposed to get in FY 2016-17.
Step1: I am working in the multinational company and my earning in FY 2020-21 including arrearsis Rs. 5,28,000, tax computed for FY 2020-21 is Rs. 32,150.
Step2: on the other hand, IF my earning in FY 2020-21 excluding arrears is Rs. 4,28,000, tax computed for FY 2020-21 will be Rs. 22,350.
Step3: Subtracting the value of both the tax paid amount is Rs. 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 2016-17 my earning excluding arrears (which is actual) is Rs. 2,51,000, tax paid for FY 2016-17 is Rs. 12,780.
Step6: After Subtracting the value of both the tax paid amount is Rs. 6,050.
In the Final step 7:
Subtracting both the differences we get Rs. 3750
That is the amount we can get relief under section 89(1) of income tax act by filling form 10E.
So, in this case, tax relief will be Rs. 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.
Click to Download Automated Income Tax Arrears Relief Calculator in Excel with Form 10E from the F.Y. 2000-01 to F.Y.2020-21 (Up-to-date Version as per Budget 2020)
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