Section 89 of Income Tax Act 💫
A Guide to Claim Tax Relief on Salary Arrears 💵
Did you know that a single clause in the Income Tax Act could save you thousands? It's true! Section 89(1) is a hidden gem that many taxpayers overlook, but it can make a huge difference in your tax planning. That's why in this edition of the JJ Tax Newsletter we’re going to explain everything you need to know about this amazing provision.
Section 89(1) of the Income Tax Act, is a clause that can make a huge difference in finances. How? Well, it allows taxpayers to claim relief from tax liability arising due to the receipt of arrears or advance salary or pension in a financial year.
What is the relief under Section 89 of Income Tax Act?
This relief is based on the principle that the taxpayer should not be taxed at a higher rate than what he or she would have paid if the income had been received in the year to which it belongs.
Section 89(1) provides a formula to calculate the amount of relief, which involves adjusting the tax liability for the current and previous years after calculating the income with the arrears or advance received. The difference between the actual tax paid and the recomputed tax is the amount of relief that can be claimed by the taxpayer.
To determine the relief under Section 89(1), you need to follow a specific calculation method. This method involves comparing the tax payable on the total income, including the arrears or advance salary, with the tax payable on the total income without considering the arrears or advance salary. The difference between these two calculations is the relief amount.
Benefits and Key Considerations:
The primary benefit of Section 89(1) is that it helps individuals in managing their tax liability more efficiently when they receive salary arrears or advance salary. By distributing the tax burden over the relevant years, taxpayers can avoid being pushed into higher tax brackets due to a one-time increase in income.
Filing for Relief under Section 89(1): A Step-by-Step Guide
If you have received salary arrears or advance salary and want to avail relief under Section 89(1) of the Income Tax Act, filing the appropriate form and providing the necessary details is crucial. To help you navigate this process smoothly, we have prepared a step-by-step guide on how to file for relief under Section 89(1):
Step 1: Obtain Form 10E
To initiate the process, you need to obtain Form 10E from the Income Tax Department's official website or your jurisdiction's tax office. Form 10E is specifically designed for claiming relief under Section 89(1). Make sure to download the latest version of the form to ensure accuracy.
Step 2: Gather the Required Information
Before filling out the form, gather the necessary information and documents, including:
Your personal details such as name, address, PAN (Permanent Account Number), etc.
Employer details, including name, address, and TAN (Tax Deduction and Collection Account Number).
Salary details for the relevant financial years, including arrears or advance salary received, month-wise breakup, and tax deducted at source (TDS) details.
Step 3: Complete Form 10E
Now, fill out Form 10E accurately and legibly. Provide the required information in the appropriate sections, including your personal details, employer details, and salary details for each financial year involved.
Step 4: Calculate the Relief Amount
Using the information gathered, perform the necessary calculations to determine the relief amount under Section 89(1). This calculation involves comparing the tax payable on the total income (including arrears/advance salary) with the tax payable on the total income without considering the arrears/advance salary. The difference between these two calculations is the relief amount.
Step 5: Attach Supporting Documents
To substantiate your claim, attach relevant supporting documents such as salary slips, Form 16, Form 26AS, and any other documents that validate the salary arrears or advance salary received.
Step 6: Submit the Form
Once you have completed Form 10E and attached the supporting documents, make multiple copies for your records. Then, submit the form to your employer or the relevant income tax authority, depending on the guidelines provided by your jurisdiction's tax department.
Step 7: Retain Acknowledgment
After submitting the form, ensure you receive an acknowledgment from your employer or the income tax authority. This acknowledgment serves as proof of submission and should be retained for future reference.
By properly calculating the tax liability and distributing it over the relevant years, individuals can manage their finances more effectively and avoid unnecessary burdens.
Remember, JJ Tax is committed to keeping you informed and empowered in all tax matters. Stay tuned for our next edition, where we'll bring you more valuable insights and expert guidance.
Until then, if you have any questions or need assistance, don't hesitate to contact our team. We're always here to help you navigate the intricate world of taxation.