Income Tax Relief (Everything You Need to Know)

The Income Tax Act of India has several sections and procedures to ease your ITR filing process. The amount of tax you are liable to pay depends on your income and the income tax slab you fit into. 

You should pay tax based 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 have to pay a higher tax on such arrears (usually, tax rates have gone up over the years, and the addition of past income increases your tax slab rate).

The income tax laws allow a relief under Section 89 to save you from any additional tax burden due to a delay in receiving income. In other words, you do not need to pay more taxes if there was a delay in payment to you and you were in a lower tax slab for the year you received the money.

Let us know more about the income tax relief in detail,

If you receive any advance or arrear from your employer, it affects your taxes. It appears on your receipt for the financial year. Section 89(1) of the Income Tax Act saves you from an additional tax burden if there is a delay in receiving income. You can claim relief under Section 89 to deal with your arrears.

You can get relief under this section of the income tax act if you come under the following situations.

1. You receive your salary in advance.
2. You receive your income in arrears.
3. You receive your gratuity (where your service of fewer than five years)
4. You receive your commuted pension.
5. You withdraw your Provident Fund prematurely.
6. You receive compensation on termination of your employment.
7. You receive arrears of family pension.

If you undergo any of the above situations, you can claim income tax relief that reduces your tax burden.

How Can I Get Income Tax Relief?

You can claim income tax relief if you come under any of the above-said situations. This income tax relief comes under section 89 of the income tax act of India.

You should submit Form 10E to claim relief under section 89. You can file Form 10E online through the e-filing portal of the income tax department.

As per Section 89(1), you get tax relief by recalculating tax for the year when you receive arrears and the year to which the arrears pertain. The taxes get adjusted in the year in which they were due.

You should fill out Form 10E before filing your income tax return.

What Is 89 Relief in Income Tax?

Section 89 of the income tax act provides you relief from the tax burden for your arrear salary. 

To claim this relief, you should calculate the difference between the actual tax paid from the year of arrears and the tax that would have been payable with the arrears.

If the difference in tax because of arrears exceeds the year of the salary arrear, the excess is allowed as relief under Section 89. 

For example, if the extra tax because of arrears in 2020-21 is Rs. 5,000 and the extra tax from 2018-19, to which the arrears pertain, is Rs. 4,000, you will get a relief of Rs. 1,000.

You should fill up Form 10E to get this relief.

How to Calculate 89 Relief?

Follow the below-given steps to calculate relief under section 89.

1. Calculate tax payable on the total income, including additional salary, arrears, or compensations, in the year you receive.

2. Calculate tax payable on the total income, excluding any additional salary, in the year you receive.

3. Find the difference between the calculation derived from Step 2 and Step 1.

4. Calculate tax payable on the total income, excluding arrears, for the year to which the arrears relate.

5. Calculate tax payable on the total income, including arrears, for the year to which the arrears relate.

6. Now compute the difference between Step 4 and Step 5.

7. Excess of the amount at Step 3 over Step 6 is the tax relief you can claim, while if the amount in Step 6 is more than the amount in Step 3, you are not liable for any relief.

What Is 10E Relief?

To claim relief under Section 89, you should fill out Form 10E.

Form 10E includes details regarding your total income and arrears.

1. You can submit Form 10E easily. It is completely digital and available on the e-portal of the Income Tax Department. You must visit the portal and log in to your account or create an account if you are a new user.

2. Form 10E is available in the income tax forms section on the portal. Fill out the form carefully and be mindful of the annexure given while filling out the form.

3. You must select the relevant annexure and fill it out (Annexure I is for an arrear amount, Annexure II for gratuity, and Annexure III for compensation received on termination of the job).

As you complete Form 10E, you can file your income tax returns with Section 89 for relief.

What Should You Do When Claiming Relief?

While claiming relief under section 89, be aware of the following points for an easy process.

1. You should file Form 10E online. If you claimed relief in the last financial year but did not file Form 10E, you will receive a notice from the Income Tax department for non-compliance. However, your return will not be processed until you submit the form.

2. Salary is usually taxable when it is due or received. But in case of arrears, salaries are usually announced from a back date, which is why they cannot be taxable when due.

3. Submit Form 10E before filing your ITR. While choosing the assessment year for arrears, you must choose the assessment year in which you receive the arrears. For example, if you receive arrears in FY 2017-18, the assessment year shall be AY 2018-19.

4. You need not attach a copy of Form 10E to your tax return. However, you must file and have all documents for your reference.

5. Your employer may ask for an acknowledgment of Form 10E. However, it is not mandatory to submit this form.

FAQ: Income Tax Relief

1. Who can fill out Form 10E and claim?

Everyone liable to pay tax is eligible to fill out Form 10E. You can fill out the form on the e-Filing portal to furnish particulars of your income in Form 10E for claiming relief as per Section 89 of the Income Tax Act, 1961.

2. How do I claim relief under Section 89 in ITR?

To claim relief under section 89 of the income tax act, you should fill out Form 10E first. Form 10E is available in the online portal of the income tax department, and you can fill out the form online. You should fill out Form 10E before filing your ITR returns.

You can file your income tax returns with section 89 as you filled out Form 10E. You receive the benefits of tax relief under this section.

3. What is the total income that can be filled out in Form 10E?

Form 10E has total income including salary received in arrears or advance.

4. How do you calculate 10E?

You can fill out Form 10E online. Download the form from the e-portal of the income tax department and follow the below steps.

The steps for filling out online Form 10E are:

1. Login to the income tax portal.
2. Under the file menu go to Prepare and Submit Form Online Other than ITR.
3. Select the AY and Form 10E.
4. Fill in your details and click on submit.
5.  Read the Instructions carefully.

Bottomline

As you read above, income tax relief helps you reduce your tax burden. You are not liable to pay additional tax for your arrears in salary. In such situations, you can claim relief under Section 89 of the Income Tax Act. You should fill out Form 10E to claim this Section 89 relief. 

Thus, you are aware of your income tax relief and its proceedings. Let us know if you of any doubts.

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