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Tax ability of Arrears of Salary – Relief u/s 89,With Automated Arrears Relief Calculator + Form 10E For F.Y.2016-17

An employee may receive any arrear or advance salary or salary for more than 12 months etc. In such a case, the assessee might have to pay higher taxes as the arrear /advance salary are taxed in the year of receipt of the same and not in the year in which they are actually due. The difference in tax liability in a due year and in receipt year might be due to changes in the slab rates. For this reason, the provision of relief u/s 89 comes in.

Download Automatic Arrears Relief Calculator U/s 89(1) with Form 10E from F.Y.2000-01 to F.Y.2016-17 

Arrears Relief’s Main Data Input Sheet
Arrears Amount to bifurcation
Arrears Relief Form 10E
Relief is available under following cases:
  • Salary received in arrears or in advance;
  • Salary for more than 12 months in one financial year;
  • Family Pension being paid in arrears;
  • Gratuity;
  • Compensation on termination of employment; and
  • Commuted Pension
To calculate relief, the following steps should be taken:
Step 1: Calculate the tax due in the current year, firstly by including the arrears in your total income and then by excluding the arrears from your total income. Then take the difference of these two figures and let’s call the difference as ‘X’.
Step 2: Calculate your tax due (or the actual tax paid) in the year for which the arrears have been received, firstly by including the arrears in your total income and then by excluding the arrears from your total income. Then take the difference of these two figures and let’s call the difference as ‘Y’.
Step 3: The figure you get when you subtract X from Y is your relief amount.
This can be better understood with the help of the example below:
Mr.Niraj earned Rs. 15,00,000 p.a. in FY 2015-16 and also received an arrear of Rs. 3,00,000 p.a. for FY 2013-14. His total salary in FY 2013-14 was Rs. 6,00,000 p.a.
The table below explains the calculation of relief:
Details
Amount
Tax due on the income of Rs. 18,00,000 in FY 2015-16 (including the arrears)
3,75,950
Tax due on the income of Rs. 15,00,000 in FY 2015-16 (excluding the arrears)
2,83,250
Difference between Tax Due (X)
92,700
Details
Amount
Tax due on the income of Rs. 9,00,000 in FY 2013-14 (including the arrears)
1,08,150
Tax due on the income of Rs. 6,00,000 in FY 2013-14 (excluding the arrears)
46,350
Difference between Tax Due (Y)
61,800
Relief under section 89 = X-Y = 92700-61800=30900
Form 10E for claiming such relief has to be submitted to your employer. Your salary slips serve as proof of receipt of arrears and should be kept safely. One important thing to note is that relief can only be claimed if tax paid is actually higher due to receipt of such arrears. If there is no extra tax liability, relief is not allowed.
In the case of VRS Compensation being received by the employee, no relief shall be granted under Section 89 if he has claimed exemption u/s 10(10C) for Voluntary Retirement Scheme. An assessee can claim either exemption under section 10(10C) or relief u/s 89 and not both together.

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