Salary Relief Under Section 89 Of The Income Tax Act

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  • 22 Feb 2023
Salary Relief Under Section 89

In case of a salaried person, there may be an occasion where the company may delay payment of salaries. In the event this happens, the tax burden for the salaried employee may change or increase because of the burden of past dues paid in the current year. Recognizing this hardship, the Government has made provisions to provide relief to salaried employees in case of salary arrears in a particular year. The tax relief under Section 89 covers salary arrears and advance salary as well.

Here are a few steps for you to calculate the tax relief:

Step 1:

You need to calculate the tax payable on the total salary amount including any arrears or advance salary. The Form 16 you get from your employer will contain details about any arrears or advance salary given. You will have to calculate tax on salary by considering standard deductions under Chapter VI like Section 80C for investment linked deductions, Section 80D for health insurance, Section 80TTA for interest income, Section 80G for donations and any other deduction that is applicable on the assessee. The tax will have to be calculated including cess and based on the existing slab rates.

Step 2:

In Step 2, you will need to calculate the total tax on your salary income without considering the salary arrears or advances. You will need to subtract this amount from your salary and then calculate tax after giving effect to deductions just like the calculation in Step 1.

Step 3:

You need to calculate the difference between the tax payable in Step 1 and Step 2. This is the extra burden of tax you need to pay because of the arrears or salary advance.

Step 4:

You need to calculate the total tax payable based on the slabs and rules of the year to which the arrears relate. For example, if your company pays you your salary from the year 2015-16, you will have to calculate your tax payable based on the income from 2015-16 after adding the arrears amount. Deductions will have to be given an effect for this calculation.

Step 5:

Your tax amount for the year to which the arrears pertain is already available based on past returns. In our example above, the tax paid for the year 2015-16 would be available from your past income tax return.

Step 6:

You need to calculate the difference between the actual tax paid from the year of arrears and the tax that would have been payable with the arrears. If the difference in tax because of arrears exceeds the difference in tax from the year of the salary arrear, then the excess is allowed as relief under Section 89. For example, if the extra tax because of arrears in 2019-20 is Rs. 5,000 and the extra tax from 2017-18 to which the arrears pertain is Rs. 4,000, then a relief of Rs. 1,000 will be given to the taxpayer. To get this relief, the taxpayer will have to fill up Form 10E

You can fill up Form 10E online by logging into the Income Tax E-Filing website and going under the section Income Tax Forms. The Income Tax website has rules and guidelines about how to fill Form 10E. The form requires details like:

  • Name and address of employee
  • PAN
  • Residential status
  • Salary received in arrears or advance
  • Payment of gratuity
  • Payment by employer in case of termination of employment before completion of notice period
  • Commuted pension payment

This has to be signed by the employee. It also requires detailed information about the salary arrears or advance to calculate the relief.

  • Total salary received in advance or arrears
  • The excess tax in the current financial year
  • The excess tax in the year of arrears
  • The differential tax or excess tax paid because of arrears or advance salary
  • Relief under Section 89

Apart from salary arrears or advance, the form also deals with relief in case of gratuity, termination compensation or commuted pension. The form 10E income tax has to compulsorily be filled online and submitted. Only if the form is filled up, relief will be available to the salaried employee. The process is fairly simple and can easily be done online to get relief from tax.

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