Usually salary income is chargeable to tax either on due basis
or on receipt basis. For the purpose of changeability salary consist of;
1.
Any
salary due from an employer including former employer in the previous year,
whether or not actually received.
2.
Any
salary paid or allowed in the previous year by or on behalf of employer
including former employer, although not due or before it became due, and
3.
Any
arrears of salary paid or allowed in the previous year by or on behalf of
employer including former employer, if not charged to income tax in any of the
previous year.
If an
employee is in receipt of any component of his salary in arrears or paid in
advance, or receives profit in lieu of salary, he can claim relief as allowed
by Section 89 read with rule 21A of Income Tax Act and Income Tax Rules. The
relief can be claimed for following;
1.
Relief
in respect of salary or family pension received in arrears or in advance [Rule
21A(2)]
2.
Relief
in respect of gratuity [Rule 21A(3)]
3.
Relief
in respect of compensation on termination of employment [Rule 21A(4)]
4.
Relief
in respect of payment of commutation of pension [Rule 21A(5)]
5.
Relief
in respect of other payment [Rule 21A96)]
Provided that no such relief shall be granted
in respect of any amount received or receivable by an assessee on his voluntary
retirement or termination of his service, in accordance with any scheme or
schemes of voluntary retirement or in the case of a public sector company, if
an exemption in respect of any amount received or receivable on such voluntary
retirement or termination of his service or voluntary separation has been
claimed by the assessee under clause (10C) of section 10 in respect of such, or
any other, assessment year.
Now let us elaborate and understand the each case separately.
Download Automated Salary Arrears Relief Calculator U/s 89(1) Rule (21A) with Form 10E For the Financial Year 2016-17 & Assessment Year 2017-18
Relief
in respect of salary or family pension received in arrears or in advance [Rule
21A(2)]
The relief on salary received in arrears or in advance is
computed in the manner as refined by rule 21A(2) which is produced as below;
1.
Calculate
the tax payable on the total income, including the salary received in arrears
or in advance, of the relevant previous year in which the same is received.
2.
Calculate
the tax payable on the total income, excluding the salary received in arrears
or in advance, of the relevant previous year in which the additional salary is
received.
3.
Find
out the difference between tax at (1) and (2).
4.
Compute
the tax on the total income after including the salary received in arrears or
in advance in the previous year to which such salary relates.
5. Compute
the tax on the total income after excluding the additional salary in the
previous year to which such salary relates.
6.
Find
out the difference between tax at (4) and (5).
7.
Amount
of relief: The excess of tax computed at (3) over tax computed at (6)
Relief in respect of gratuity [Rule 21A(3)]
Relief for gratuity can is claimed if the amount of gratuity
received is in excess of gratuity specified under section 10(10). However no
relief is permissible if the taxable gratuity is received for less than 5 years
of service period. The amount of relief is admissible in the as per following
category
1.
Where
gratuity payable is in respect of past service of 15 years or more
The amount of relief is
calculated as follows:
1.
Compute
the average rate of tax on the total income including the gratuity in the year
of receipt
2.
Find
out the tax on gratuity at the average tax rate as computed in (1)
3.
Compute
the average rate of tax by adding 1/3 gratuity to preceding 3 previous years
4.
Find
out the average of 3 years average rate as computer in (3) and compute the tax
on gratuity at that rate
5.
Relief
admissible : difference between (2) and (4)
2. Where such period is 5 years
or more but less than 15 Years
The amount of relief for
this category , the relief is calculated as on the similar lines of above with
only difference that instead of average of average rates of 3 years, the
average of average rate of 2 years shall be taken by adding ½ of gratuity to
each of two preceding year.
Relief in respect of compensation on termination of employment
[Rule 21A(4)]
If the compensation received by the employee from his current or
previous employer at or in relation with termination of his employment after
completion of 3 years of service and unexpired portion of his term of
employment is more than 3 years, the relief is calculated in the same manner as
if gratuity paid to employee in respect of service rendered for a period of 15
years or more.
Relief in respect of payment of commutation of pension [Rule
21A(5)]
A relief can be claimed in respect of commutation of pension
received in excess of limits specified under section 17(1)(ii). Such relief is
computed in the same manner as if gratuity paid to employee in respect of service
rendered for a period of 15 years or more.
Relief in respect of other payment [Rule 21A(6)]
In respect of any other payment received by employee other than
those specified above, the relief will be granted by the CBDT after examination
of circumstances of each case.
Procedure for claiming the tax relief – In order to claim tax
relief under the aforesaid circumstances, the employee should give relevant
information in his income tax return.
Basically relief under section 89 is arithmetical. It involves
finding out two tax rates.
