Income Tax Relief Under Section 89 On Salary Arear
Income Tax Relief Under Section 89 is often ignored.In this article we will explain how you can claim tax relief u/s 89.
If you are a govt. employee or salaried employee,you might have experienced one thing that you were given salary of previous years in current year.And we call such salary amount an Arear.
It is important to note here that Income tax department offers you tax relief under section 89 because you got your previous year salary in later years.
And you know tax slab rate of past years has less income tax rate as compared to current financial year.
So that is why you are elligible for this income tax relief u/s 89 if you have got salary of past years in terms of Arears.
How to calculate income tax relief u/s 89
Now it is time to calculate your tax relief.
Step-1: First of all add arear amount to your gross salary of a current financial year.
Now calculate tax of total amount in step -1.
Similarly Calculate your tax for current financial year excluding your arear amount.
Now take difference of tax you have calculated including arear amount and excluding arear amount .Name it X
Now suppose you have got arears for 2014-15,2015-16,2016-17 financial years.
So calculate the tax for financial year 2014-15 including Arear amount and then without arear amount.
Similarly Calculate the taxes for 2015-16,2016-17 including arear and excluding arear amount.
Now add all taxes amount including arears and call it Y for 2014-15,2015-16 and 2016-17 and add all taxes excluding arear amount and call it Z.
Now subtract Y from Z and call it Y1.
Further subtract X from Y1 and the remaing amount is your tax relief.
Example to calculate Tax relief u/s 89
Suppose current year is 2017-18.And tax due including arear is rs 60000.
And tax due without arear is rs 40000.
Now 50000-40000=10000.we call it X=10000.
Now suppose tax liabilities for 2014-15,2015-16 and 2016-17 With arear is rs. 50000
And without arear tax liability is rs 40000.
Now subtract these and call it Y.So Y=10000.
Lastly subtract X and Y.Hence tax relief Will be 20000-10000=10000.
Special note 1 :
You can only claim tax relief if X is greater than Y.
If X is less than Y you can not claim income tax relief.
Special Note 2:
If you want to claim tax relief under section 89,you have to file form 10E online before filing your income tax return.
So at last we can say tax relief on arear under section 89 may reduce our tax liability if we file form 10E and know how to calculate income tax relief under section 89 on salary or pension arear.