Advances or dues received from an employer affect taxes and are reflected in the year of receipt. The exemption under section 89 (1) under the Income Tax Act saves you from the burden of additional tax if you are late in receiving your income.
To claim compensation under this
section, an employee must meet certain conditions. To begin with, Section 89
exemption may be sought on any of the following received during a particular
year:
a) Arrears Salary Received from
previous financial year
b) Advance withdrawal from the
pension fund
c) Free
d) Commuted value of the pension
e) arrears of the family pension
f) Termination from the service
Section 89 (1) - Wage reliefs
The tax is calculated on the total
income of the taxpayer earned or received during the year. The Income Tax Act
allows you to apply for tax relief under section 89 (1) if the assessor has
received a waiver from his "past or early" salary or has received the
family pension in arrears.
Tax liabilities for a taxpayer are
calculated by the income earner during that financial year. This income can
include overdue paid in the current year. Tax rates tend to increase over the
years and in such cases the valuer may have to pay more tax. The Income Tax Act
provides relief to assessors under section 89 (1) in such situations.
Section 89. seek relief under
An employee entitled to claim
exemption under Section 89 must submit Form 10E. It must be filed online on the
electronic filing portal of the Revenue Agency. Pursuant to Article 89,
paragraph 1, the tax relief is provided by recalculating the tax relating to
the year in which the arrears are received and the year from which the arrears
are due; And the taxes are adjusted in the year they were due.
Note: Form 10E must be submitted
before filing the tax return.
Form 10E. Characteristics of Form 10E contains details regarding an employee's total income and arrears received.
1. The submission of Form 10E is simple and completely digital, available on the electronic portal of the Department of Income Taxes. If you are a new user all you have to do is visit the portal and log into your account or create an account
2. Form 10E is available in the
Income Tax Forms section of the portal. Fill out the form carefully and take
care of the attachments provided when filling out the form.
3. You must select and fill in the
relevant annex (Annex I is for arrears, Annex II for gratuity and Annex III for
compensation received in the event of termination of employment).
How to calculate the tax relief
under section 89 (1) on wage arrears?
1) Calculate the tax payable on
total income, including excess wages, arrears or allowances, in the year in
which it is received.
2) Calculate the tax due on total
income, excluding any additional remuneration in the year in which it is
received.
3) Subtract the calculation
obtained from step 2 from the total salary calculation from step 1.
4) Calculate the total income tax,
excluding arrears, for the year to which the arrears refer.
5) Calculate the tax due on the
total income, including arrears, of the year to which the arrears refer.
6) Now deduct between step 4 and
step 5 and find the difference.
7) The amount exceeding Step 6 at
Step 3 is the tax relief that will be granted to you, while no relief will be
granted if the amount at Stage 6 exceeds the amount at Step 3.
Five things to remember as you
apply for relief on arrears
1. Form 10E must be submitted online. All taxpayers who applied for relief in the previous year but did not submit Form 10E will be notified by the Income Tax Department of non-compliance, however, your return will not be available until you submit the form. it will not be processed.
2. Wages are generally taxable on
due date or upon receipt, but in the event of default, they are usually
declared from a retroactive date, which is why they cannot be taxed on due
date.
3. Submit Form 10E before submitting your ITR. When it comes to choosing the assessment year for arrears, you need to choose the assessment year in which the arrears are received.
Download Automated Income Tax Arrears Relief Calculator U/s 89(1) along with Form 10E from the Financial the Year 2000-01 to Financial Year 2021-22 (Up-to-date Version)
