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Tax Relief of Section 89
(Section 89 of the Income Tax Act & Rule 21A of the Income Tax Rules)

Applicable when arrear salary, advance salary, profit in lieu of salary, leave encashment or any other such accumulated income is received

Salary due in earlier years and received in later years is called as arrear of salary. As per Income Tax Act any arrear of salary which was not charged to tax earlier shall be chargeable to tax in the year in which it is given to the employee.

This taxability of arrear salary in the year of receipt may lead to a higher tax burden on the assessee. There may be employees who fall in 20% tax bracket but due to inclusion of arrear salary they reach to 30% tax slab.

To overcome such an hardship on assessees a relief is provided under Section 89 of the Income Tax Act.

As per Section 89 an assessee in receipt of arrear salary, advance salary, profit in lieu of salary or any other such receipt  shall be granted a relief of tax which shall be calculated according to Rule 21A of Income Tax Rules. The relief is granted of the amount of any additional tax burden faced by assessee due to inclusion of the additional salary in the year of receipt.


Methodology to calculate the amount of relief as per Rule 21A admissible u/s 89-


The calculation of additional tax burden on assessee, granted as relief is done in following steps:
  1. Calculate tax on total income including the additional salary in the year of receipt of arrear/advance salary.
  1. For the same year(year of receipt of arrear/advance salary) calculate tax on total income excluding the additional salary received.
  1. Now find out the difference of above two ie. (1)-(2).
  1. Compute tax on total income including the additional salary in the year to which such additional salary belongs to.
  1. For the same year( the year to which such additional salary belongs to) compute tax on total income excluding the additional salary. 
  1. Now find out the difference of above two ie. (4)-(5).
  1. Any excess tax in the year of receipt ie. at point number (3) over the tax of the year to which additional salary belongs to ie. at point number (6) will be admissible as relief under section 89. However if there is no such excess tax burden no relief will be granted u/s 89.
  1. If the additional salary belongs to more then one previous years the calculation will be done to all such years in the similar manner.
Important Point:

It is required to e-file Form 10E on the e-filing portal of Income Tax department to claim the benefit of Section 89. Just log in to your e-filing account and find forms other than ITR. There you will get Form 10E. It is to be filled & filed online with details of your past years salary & tax relief claimed.

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