Understanding Section 89(1) tax relief
What's the story
India's income tax laws strive to be just and balanced, aiming to prevent taxpayers from experiencing excessive strain due to their tax liabilities.
One such provision focused on alleviating tax strain arising from arrears or advance salary is Section 89(1).
This section provides relief when an individual receives salary in arrears or in advance, or when they receive a family pension in arrears.
Trigger
What triggers Section 89(1) relief?
You become eligible for Section 89(1) relief when you receive arrears of salary, advance salary, or a lump sum family pension.
This provision comes into play when such income leads to a higher tax rate compared to regular receipt.
It is intended to alleviate the additional tax burden arising from timing differences in income receipt.
Calculation
Calculating relief under Section 89(1)
To compute relief under Section 89(1), start by determining the tax on total income, including arrears, for the current year.
Deduct the tax calculated without arrears. This difference is your tax on arrears.
Then, calculate what your income and tax liability would have been in the years the arrears were due.
Compare this to what was actually paid. The relief is the difference between these two amounts.
Claiming
Claiming relief: The process
In order to claim relief under Section 89(1), it is mandatory to submit Form 10E before filing your income tax return.
Failure to submit Form 10E will lead to a disallowance of the relief claimed by the Income Tax Department.
This form outlines your income, its distribution across years due to arrears or advances, and computes the relief you are eligible for.
Tips
Practical tips for maximizing relief
One practical tip for maximizing your relief under Section 89(1) is to keep accurate records.
Make sure all documents related to your employment and income are organized and easily accessible.
This includes pay slips showing any advance payments or arrear settlements and any communications regarding lump-sum pensions.
Good records will help you prove your claim when filling out Form 10E and ensure you don't miss out on any entitled benefits.