1. What is relief under section 89(1)?
Tax is calculated on your total income earned or received during the year. If your total income includes any past dues paid in the current year, you may be worried about paying a higher tax on such arrears (usually tax rates have gone up over the years).
To save you from any additional burden of tax due to delay in receiving income, the tax laws allow a relief under section 89(1).
In simple words, you do not pay more taxes if there was a delay in payment to you and you were in a lower tax bracket for the year you received the money.
2. How to calculate tax relief under Section 89(1) on salary arrears
If you have received any portion of your salary in arrears or in advance, or you have received the family pension in arrears, you are allowed some tax relief under section 89(1) read along with Rule 21A.
Here’s how you can calculate the tax relief yourself –
Step 1: Calculate tax payable on the total income, including additional salary – in the year it is received.
Arrears provided for will reflect in Part B of Form 16.
Step 2: Calculate tax payable on the total income, excluding additional salary in the year it is received. You can get the amount of the additional salary (Arrears) from the arrear document given by your employer.
Now you have to subtract the arrear from the total salary received (including the arrears), which can be taken from your Form 16.
After knowing the amount after arrear, you need to calculate the tax over the same.
Step 3: Calculate the difference between Step 1 and Step 2.
Step 4: Calculate tax payable on the total income of the year to which the arrears relate, excluding arrears.
Step 5: Calculate tax payable on the total income of the year to which the arrears relate, including arrears
Step 6: Calculate the difference between Step 4 and Step 5.
Step 7: Excess of amount at Step 3 over Step 6 is the tax relief that shall be allowed.
If the amount in Step 6 is more than the amount in Step 3 no relief shall be allowed.
Alternatively, you may follow the steps on the income tax website to calculate the tax the arrears.
Once you have calculated this amount you can enter the values on ClearTax and proceed to file your return.
3. Filing Form 10E
To claim the benefits under section 89(1), filing of Form 10E is mandatory. This form can be filed online on the income tax e-filing portal. To access the form you must login to your account.
4. How to file Form 10E
Form 10E can be filed online. Here are the steps to file Form 10E online
- Step 1: Login to https://incometaxindiaefiling.gov.in/ with your User ID and password along with the date of birth.
- Step 2: After you have logged in, click on tab named ‘e-File’ and select ‘Income Tax Forms’.
Step 3: The below screen shall appear. Enter the PAN and select Form 10E, the assessment year and the submission mode from the drop-down.
Step 4: The below screen shall appear with instructions on how to file Form 10E and enter the details in blue tabs provided.
Step 5: On completing the Form, click on ‘Preview and Submit’.
5. Income Tax Notice for non-filing of Form 10E
From the financial year 2014-15 (assessment year 2015-16), the income tax department has made it mandatory to file Form 10E if you want to claim relief under section 89(1).
Taxpayers who have claimed relief under section 89(1) but have not filed Form 10E have received an income tax notice from the tax department with the following lines –
The relief u/s 89 has not been allowed in your case, as the online form 10E has not been filed by you. The furnishing of Online form 10E is required as per sec.89 of the Income Tax Act
Here are some FAQs relating to Form 10E
What is Form 10E?
Starting financial year 2014-15 (assessment year 2015-16), the income tax department has made it mandatory to file Form 10E if you want to claim relief under section 89(1).
Where can I file Form 10E?
Form 10E can be filed online on www.incometaxindiaefiling.gov.in – steps are listed here.
Which assessment year should I choose while filing Form 10E?
Choose the assessment year in which arrears have been received by you. For example, if arrears are received in financial year 2018-19, choose assessment year 2019-20.
Do I need to submit Form 10E before filing my return, or it has to be submitted after filing income tax return?
You must submit Form 10E before filing your income tax return. In case you have submitted your return and not filed Form 10E, and you have claimed relief under section 89(1), most likely you will receive a notice from the tax department asking you to file Form 10E.
Do I need to attach a copy of Form 10E with my tax return?
Form 10E has to be submitted online and no copy is required to be attached with your tax return. If you have filed Form 10E online, no documents are required to be submitted to ClearTax or the income tax department. Income tax returns are annexure less returns. However, you must keep all your documents safely in your records in case AO asks for them in future.
Do I need to submit Form 10E to my employer?
Your employer may ask for confirmation of submission of Form 10E before adjusting your taxes and allowing tax relief. It is not mandatory to submit this form to the employer.
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