Salary arrears mean the exceptional salary of an earlier month. There might be an amendment in the Salary of a worker from retrospective effect. Further, salary may have been reexamined yet additions can be paid sometime in the future. Thusly, in such cases, the differential sum paid in the ensuing time frame is known as salary arrears. The business specifies it independently in the salary slips and part B of Form 16
Example
Arjun's salary is INR 50,000 every month. His boss raised the salary to INR 60,000 every month in April 2020 effective from Walk 2020. Since the salary for Walk 2020 would as of now be paid, the extra INR 10,000 ought to be paid in April 2020. This is called Salary Arrears.
Taxability of Salary Arrears
Arrears in salary is treated as a salary income. They are taxable in the year of receipt. In any case, the taxpayer can guarantee relief under Section 89(1). The taxpayer should report it under the head 'Salary' and pay tax at piece rates.
Relief under Section 89(1)
A taxpayer accepting any part of the salary falling behind financially or ahead of time or gets benefits in lieu of salary can guarantee relief under Sec 89(1) of the Income Tax Act.
On the off chance that the total income of a taxpayer incorporates any previous salary paid in the current monetary year and the tax section rates are diverse in the two years, this may prompt higher tax duty. Consequently, the Income Tax The act permits relief u/s 89(1) to save the taxpayer from any extra tax liability because of deferral in accepting income. Besides, the business ascertains relief under Sec 89(1) and notices it To a limited extent B of Structure 16. Further. the representative can guarantee relief under Sec 89(1) by recording Structure 10E on the income tax site.
Allow us to understand the steps to compute tax relief with the assistance of a model.
Arjun's salary is INR 6,00,000 (50,000 every month). His boss raised the salary to INR 7,20,000 (60,000 every month) in April 2020 which is effective from Walk 2020.
Subsequently, the year of Receipt would be FY 2020-21 and the year of Gathering would be FY 2019-20. Thus, the arrears would add up to INR 10,000 for Walk 2020
Figuring of Tax Relief under Section 89(1) for Salary Arrears
1. Tax Liability on total income including arrears for the year of receipt
Figure tax liability on total income including salary arrears in the year of receipt
Year of Receipt = FY 2020-21
Total Income (including arrears) = INR 7,30,000
Tax Liability = INR 60,840
2. Tax Liability on total income barring arrears for the year of receipt
Figure tax liability on total income barring arrears in the year of receipt
Year of Receipt = FY 2020-21
Total Income (barring arrears) = INR 7,20,000
Tax Liability = INR 58,760
3. Difference between Step 1 and Step 2
Ascertain the contrast in tax liability between step 1 and step 2
Distinction in tax liability = 60,840 – 58,760 = INR 2,080
4. Tax Liability on total income barring arrears for the year of gathering
Figure tax liability on total income barring extra salary for example salary arrears of monetary year to which arrears are connected
Year of Accumulation = FY 2019-20
Total Income (barring arrears) = INR 6,00,000
Tax Liability = INR 33,800
5. Tax Liability on total income including arrears for the year of gathering
Ascertain tax liability on total income including extra salary for example salary arrears of monetary year to which arrears are connected
Year of Accumulation = FY 2019-20
Total Income (including arrears) = INR 6,10,000
Tax Liability = INR 35,880
6. Difference between Step 4 and Step 5
Compute the contrast between step 4 and step 5
Contrast in tax liability = 35,880 – 33,800 = INR 2,080
7. Relief = Step 3 – Step 6
Income Tax Arrears Relief U/s 89(1) = Step 3 – Step 6. In the event that the sum in step 6 is more than step 3, no tax relief is permitted
Tax Relief = NIL
Furthermore, you can compute tax relief under Sec 89(1) by utilizing the mini-computer of Income Tax Department – Relief under Section 89(1)
FAQs
How to guarantee tax relief on Salary Arrears under Section 89?
Salary arrears received in advance are taxable in the year of receipt. The income tax department permits tax relief u/s 89 of the Income Tax Act to save the taxpayer from the extra tax trouble. Accordingly, the business will determined relief u/s 89 and report in Structure 16. The representative can guarantee such relief in the ITR.
How to save tax on Salary Arrears?
A representative who has gotten arrears in salary can save tax on such extra income in the accompanying manners:
* Compute the relief u/s 89(1)
* File Form 10E to guarantee relief u/s 89(1)
| with Automated Arrears Relief Calculator U/s 89(1) with Form 10E for the F.Y.2020-21){kind=link}
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