07 August 2018

Tax Relief Under Section 89 (1) | Arrears of salary | Income tax calculation



What is Relief U/S 89(1)?

If your present year salary includes arrears (due) from any old assessment year(s) or includes salary in advance, then the aggregate value may taxed at a higher rate due to normal increment of income tax rate or overlapping the income into a higher tax slab. However to the taxpayer, it will be an unfortunate event, if he/she end up with paying higher tax, just because the employer made delay in salary payment. To safeguard the taxpayers' from such incidences, Income tax department allow to claim relief u/s 89(1) of Income Tax Act, 1961

Rule 21a of the Income Tax Rules, 1962 specifies how to claim relief. Always remember to file form 10E if you entitled to get relief as per computation.

How to Calculate Relief ?

  1. Calculate tax on the present year salary including all arrears. (let, a)
  2. Calculate tax on the present year salary excluding all arrears. (let, b
  3. Calculate tax on the related year(s) salary including the relevant arrears. (let, x)
  4. Calculate tax on the related year(s) salary excluding the relevant arrears. (let, y)
Relief Amount will be:- [(a-b)-(x-y)]


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