Receiving salary or pension in arrears might change your tax situation. You may fear it's going to move you up a tax
slab. Or tax rates may be higher in the year arrears are received as compared
to the year to which they belong. To protect you from any additional tax
burden, due to delay in receiving income, the tax laws allow a relief under
Section 89(1). This relief can be directly claimed in your income tax return,
if you have received any portion of your salary in arrears.
The Income Tax Department has made it
mandatory to file Form 10E if you want to claim relief under Section 89(1). As
per Section 89(1), tax relief is provided by recalculating tax for both the
years; the year in which arrears are received and the year to which the arrears
pertain. Your taxes are adjusted assuming arrears were received in the year in
which they were due.
Let's understand this calculation in
detail. Tax for the year in which arrears are received is calculated both
inclusive as well as exclusive of arrears. The difference is the tax on
additional salary, let's call it x. Now tax is computed for every year to which
the arrears pertain- including as well as excluding arrears. The difference is
arrived at, let's call it y. If x is more than y, relief is available to the
taxpayer.
Here are some important things to
remember while claiming relief on arrears:
Form 10E must be filed online on the
Income Tax Department website www.incometaxindiaefiling.gov.in.
Taxpayers who claimed relief last financial year but did not file Form 10E
received a notice from the department for non-compliance. Your return is not
processed until you submit this form.
You must submit Form 10E before filing
your income tax return.
Many taxpayers are confused about which
assessment year to choose while filing Form 10E. Arrears may pertain to earlier
years, however, one has to choose the assessment year in which arrears have
been received. For example, if arrears are received in financial year FY
2017-18, choose assessment year as AY 2018-19.
Form 10E has to be submitted online and
no copy is required to be attached with your tax return. However, you must file
and keep all documents safely in your records.
Your employer may ask for confirmation
of submission of Form 10E before adjusting your taxes and allowing tax relief.
It is not mandatory to submit this form to the employer. You can claim tax
relief by filing this form at the time of submitting your tax returns.
Salary is usually taxable when it is due
or when it actually received, whichever is earlier. Arrears are usually
announced from a back date and therefore cannot be taxed when due
Relief under Section 89(1) is also
allowed to those who receive family pension in arrears. The calculation is the
same as mentioned above. Do remember this very important step while filing your
returns if you have received arrears during the financial year.
Download Automated Income Tax Master of Form16 Part B in Revised Format for the Financial Year 2019-20 [ This Excel Utility can prepare at a time 50 Employees Form 16 Part B for F.Y. 2019-20 ]
