Relief under section 89 Taxability in case of Arrear of Salary

Relief under section 89 Taxability in case of Arrear of Salary

According to Income Tax Act 1961 section 89 say if  any assessee received Arrear salary  of previous years can claim relief  under  this Act. This section provide great relief to assessee from excess tax burden.

 

 Steps to claim relief under section 89

Step 1: Firstly, calculate the tax due in the current year by including the arrears in your total income.

Step 2: Now calculate the tax due in the current year by excluding the arrears from your total income.

Step 3: Compute the difference of the two figures of Step 1 & 2 and let’s call that difference as ‘X’.

Step 4: Now Calculate your tax due in the year for which the arrears have been received by including the arrears in your total income.

Step 5: Then Calculate your tax due in the year for which the arrears have been received by excluding the arrears from your total income.

Step 6 : After that compute the difference of the two figures of Step 4 & 5 and let’s call the difference as ‘Y’.

Step 7: Lastly subtract Y (Step 6) from X (Step 3) and you will get the relief amount.

This can be better understood with the help of the example below:

Total Income of Manoj Kumar Saini was Rs. 12,00,000 per Annum in Financial Year 2019-20 and also received an arrear of Rs. 2,50,000  for Financial Year 2018-19.  And Rs. 2,00,000 . He also Contribution Rs.110,000 to  Provident Fund. His total Taxable income in FY 2018-19 was Rs. 3,00,000 and  Rs.2,00,00 for Financial Year 2017-18

 Particulars 2019-20 Tax 2018-19 Tax 2017-18 Tax
 Income 1200000 300000 200000
Standard Deduction 50,000
80C 110000
Arrear salary 250000 200000
Taxable Income 1040000 550000 400000
Income Tax on Rs. 500000 12500 12500 7500
Income Tax on Next Rs 500000 100000
Income Tax on Balance 40000 12000
Income tax Excluding Arrear Received 30500 Nil Nil
 Income Tax Inclusive of Arrear 124500 22500 7500
X 94000 Y 22500 7500

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