As
per section 89(1) of the Income Tax Act, 1961 relief for income tax has been
provided when in a financial year an employee receives a salary in arrears or
advance. As per Rule 21AA of the Income Tax Rules, 1962, Form 10-E has
been prescribed for claiming the relief.
According
to the said rule, in case the employee is a Government servant or is an
the employee in a company, cooperative society, local authority, university,
institution or association of body, he/she may for claiming the relief submit
the form 10E to his/her employer who is responsible for making the payment
of the salary as referred to in subsection (1) of section 192 of the Income
Tax Act, 1961
In
all other cases, the assessee for claiming the relief should file an
application in form 10E to his/her income tax assessing officer. The
relief under section 89(1) is allowable in the assessment year in
which the arrears or the advance is received by the employee.
Pay
revisions, particularly in Government Sector, have become common. Since
independence 7th Pay Commissions have been set up by the Government
so far. Recommendations of each commission with retrospective effect have
resulted in arrears of salaries. The rationale behind giving this
relief under section 89 is that due to the payment of arrear or advance
salary received in a given financial year, the income of the employee
for that financial year gets increased due to the amount of the arrears or
advances. As a result, the income of the employee attracts taxation at a higher
rate than that rate at which his income would have been taxed had there been no
such arrears or advances.
The
steps involved in computing the relief under section 89(1) basically involves
the following steps:
First- spread out the amount of arrears or advance received over the
specific financial year to which they relate and re-calculate the income tax
for each year had the arrears been received during the concerned financial year
itself.
Second-calculate income tax for each
of the financial years without taking into account the arrears or the advance
received.
Third- deduct the total of income tax arrived at 2nd step
from step-1.
Fourth-calculate income tax for the financial year in which the arrears are received, including the arrears/advance
received.
Fifth- calculate income tax for the financial year in which the arrears are received, excluding the arrears/advance
received.
Sixth- deduct income tax arrived at step-5 from income tax arrived
at step-4
Seventh- deduct income tax arrived at step-3 from income tax arrived at
step-6
The
a figure so arrived is the amount of the relief under section 89(1).
Click here to download the Automated Income Tax Arrears Relief Calculator U/s 89(1) with Form 10E from theF.Y.2000-01 to F.Y.2020-21
