Section 89 of income tax act

Relief is given in section 89 to protect a taxpayer from excess tax liability in income tax . Section 89 relief is given when a person receives advance salary, arrears of salary, family pension or profit in lieu of salary.
Whenever a person gets an arrear of salary of old years, then his total income increases. Along with this, the slab rate also changes, due to which more tax has to be paid. The relief of section 89 provides us relief from this increased tax.

If we receive arrears of salary or salary in advance, then we can claim relief under section 89 in the income tax return to be filed.

In today's article, we will know what is relief under section 89, how it is obtained, what is the calculation of relief and what are the other provisions?

Also know:
  • Why does Income Tax Department scrutinize your accounts – scrutiny assessment under section 143 of income tax act
  • Why is a PAN card necessary and can a penalty be imposed on you if you do not have a PAN card?
  • What is benami property and what are its disadvantages?
  • Taking retirement early? So save your tax like this

When is tax to be paid on salary?

Before understanding the relief of section 89, we will know when income tax is to be paid on salary.

According to the Income Tax Act 1961, salary due or receipt, whichever is earlier, is taxable. For example, if the salary due in March 2020 is received in April 2020, then it will be taxable in the financial year 19-20 and not in the financial year 2020-21 due to the receipt in April.

When Arrears of Salary is received, it is taxable in the year of receipt, as it pertains to earlier years and cannot be taxed at the time when it is due. Similarly advance salary will also be taxable at the time when it is received and not at the time when it is due.

How is the relief of section 89 calculated? relief under section 89 of income tax act in english calculation ?

To remove the relief of section 89 of income tax act, some steps have to be followed, which is –
In the year in which the arrears of salary are received, take the tax on the total income including the arrears in that year ,
arrears of salary received in the year, including the arrears that year not derive tax while,
Find the difference between step 1 and step 2 (2-1),
Deduct tax on total income including arrears in the year to which arrears of salary are related ,
arrears of salary covered the years arrears in the year not to remove tax on the total income,
Find the difference between step 4 and step 5 (4-5 ),
Find the difference between step 6 and step 3

The more the amount of step 3 comes, the relief will be given in section 89 of that amount. But if the amount of step 6 is more then no relief will be given.

Let us see an example to understand this –

Suppose your income in assessment year 2020-21 is 10 lakhs and you get salary arrear of 1 lakh, which is related to assessment year 19-20. Your total income in the assessment year 2019-20 is 7 lakhs. So what will be the calculation of section 89 relief in this case?

solution –
ParticularsAY 2020 -21AY 2019 -20
income before arrears10,00,0007,00,000
Tax liability ( A)1,17,00054,600
Income after arrears11,00,0008,00,000
Tax liability ( B)1,48,20075,400
Tax liability (B-A)31,20020,800
Tax relief under section 89 (31200-20800)10,400
Tax payable in A.Y. 2019-20 (148200-10400)1,37,800
Thus in this example you can see that without claiming relief under section 89, the tax liability for the assessment year 2019-20 is Rs 1,48,200. And after claiming section 89 relief it comes to 1,37,800. That is, in this case you are getting relief of Rs 10,400.

Note: Tax Calculation 

How to claim relief under section 89 of income tax act ? How to claim relief under section 89 ?

After claiming the section 89 relief calculation, it has to be shown in your income tax return. Whenever you file income tax return, there is a separate column for claiming relief under section 89. The amount of relief under section 89 has to be entered in that column.

You are also required to file Form 10E whenever you claim section 89 relief in your income tax return. Otherwise, your return will not be processed.

Form 10e can be filed on the Income Tax online portal. After going to the Income Tax Online Portal, you have to login and go to Income Tax Forms and select Form 10e.

After selecting Form 10 e, you have to fill the arrears of salary and relief amount.

Whenever you claim relief under section 89, you must file Form 10E.

Can I get income notice for not filing Form 10E ?

If you do not file Form 10 e , the Income Tax Department can issue an income tax notice to you. In this notice you may be asked to file Form 10e. Your Income Tax Return will not be considered as filed unless you file Form 10e in response to this notice.

Therefore, whenever you claim relief under section 89 in your income tax return, you must file Form 10e.

Regarding the relief of section 89, please share our article relief under section 89 of income tax act in english further.

Also know:

How to save tax on capital gains?

  • When tax rebate is given in income tax liability - income tax rebate rules under section 87A
  • Is agricultural income completely tax free- Taxation of agricultural income
  • When is it necessary to get tax audit done and penalty levied – what is tax audit u/s 44 AB
  • Know what is gratuity and how is gratuity tax calculated?
  • What is TDS and how is it deducted on salary?