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
|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|