WHAT
IS THE ACTUAL CALCULATION OF ARREARS RELIEF U/S 89(1) AND WHAT'S
THE PROCEDURE TO CALCULATE THE ARREARS RELIEF WHICH IS GET THE AMOUNT OF
AN EMPLOYEE BEHIND HIS PREVIOUS YEARS. HERE IS GIVEN BELOW THE AUTOMATIC
ARREARS RELIEF CALCULATOR SINCE THE FINANCIAL YEAR 2000-01 TO 2013 WITH FORM
10E.
SECTION 89 l RELIEF WHEN SALARY
ETC., IS
PAID IN ARREARS OR IN ADVANCE
Scope
of relief under the section in five situations explained
1. Section
89(1) authorises grant of relief in a case where an employee receives salary in
arrears or in advance or has received in any financial year salary for more
than twelve months, a payment which under the provisions of section 17(3)(ii)
is a profit in lieu of salary. The effect of such increase is that the
income will be assessed at a higher rate than it otherwise would have been
assessed and it is for this reason that section 89(1) authorises relief to be
allowed. The relief is to be allowed in terms of rule 21A of the
Income-tax Rules, 1962.
2. Rule 21A(1)
enumerates the following five different situations wherein the assessees will
be entitled to relief (four of these are specific situations while the fifth is
a residuary one) :
a. salary being received in arrears or advance;
b. where the payment is in the nature of
gratuity in respect of past services extending over a period of not less than
five years is received;
c. where the payment is in the nature of
compensation received by the employee from his employer or former employer at
or in connection with termination of his employment after continuous service of
not less than three years and where the unexpired portion of the term of
employment is also not less than three years;
d. where the payment is in
the nature of commutation of pension;
e. where the payment is not covered by the
description given in (a) to (d) above.
The relief is
to be worked out in the first four situations in accordance with the specific
modes described in rule 21A (2)(a)
to (d).
3. The
authority to grant relief in the four specific cases is the Income-tax Officer
assessing the employee. In the residua case, it is Central
Board of Direct Taxes.
4. The relief
under section 89(1) is to be given in the assessment in which the extra payment
by way of arrears, advance, etc., is taxed. The mode of granting
relief spelt out in rule 21A(2) to 21A(5) would show that in all the four
different cases the exercise of giving relief is initiated by bringing to tax
the whole of the extra amount in the assessment for the assessment year
relevant to the year of receipt. Basically, the relief under section
89(1) is arithmetical. It involves finding out of two rates of tax. The first
is the rate of tax applicable to the total income including the extra amount in
the year of receipt. The second is finding out the rate by adding the arrears
to the total income of the years to which they relate. For this
purpose the assessee should be asked for a true and authentic statement of the
total income of the earlier years to which the arrears pertain There is
no warrant for issuing a notice under section 148 or calling for returns of
income of the earlier years.
Circular : No. 331
[F. No. 174/102/79-IT(A-I)], dated 22-3-1982.
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