What is the meaning of relief under section 89(1)?
Tax is calculated on your total income earned or received during the year. If your total income includes any past dues paid in the current year i.e., arrears of salary or advance salary or arrears of family pension, you may be worried about paying a higher tax on such arrears as the tax slab rate of past years has less income tax rate as compared to current financial year.
To reduce the additional tax burden due to delay in receiving such income, relief under section 89(1) is provided.
How to calculate relief for the AY 2019-2020 (FY 2018-2019)?
Relief can be calculate by following the below steps :
| S1 | Calculate tax payable of the previous year in which the arrears/advance salary is received by considering: | |
| (a) | Total Income inclusive of additional salary | |
| (b) | Total Income exclusive of additional salary. | |
| S2 | Compute the difference of the tax calculated in Step 1 i.e.,(a) – (b) | |
| S3 | Calculate the tax payable of every previous year to which the additional salary relates: | |
| (a) | On total income including additional salary of that particular previous year. | |
| (b) | On total income excluding additional salary. | |
| S4 | Calculate the difference between (a) and (b) in Step 3 for every previous year to which the additional salary relates and aggregate the same. | |
| S5 | Relief under section 89(1) = Amount calculated in Step 2 – Amount calculated in Step 4 |
Let’s take an example :
Mr. A aged 64 years total income of Rs. 10,20,000/- for Financial Year 2018-2019 (Assessment Year 2019-2020) and received arrears of Rs. 1,03,000/- for Financial Year 2010-11 (Assessment Year 2011-12). The total income for Financial Year 2010-11 is Rs 7,10,000.
| Assessment Year | Slab rates of income-tax | |||
| For resident individuals of the age of 60 years or more at any time during the previous year | For other resident individuals | |||
| Slabs | Rate | Slabs | Rate | |
| 2011–12 | Upto Rs 2,40,000 | Nil | Upto Rs 1,60,000 | Nil |
| Rs 2,40,001 – Rs 5,00,000 | 10% | Rs 1,60,001 – Rs 5,00,000 | 10% | |
| Rs 5,00,001 – Rs 8,00,000 | 20% | Rs 5,00,001 – Rs 8,00,000 | 20% | |
| Above Rs 8,00,000 | 30% | Above Rs 8,00,000 | 30% |
Education cess@2% and secondary and higher education cess@1%
S1: Computation of tax payable by Mr. A for the A.Y.2019-20
| Particulars | Including arrears of salary | Excluding arrears of salary |
| Current year salary | 10,20,000 | 10,20,000 |
| Add: Arrears of salary | 1,03,000 | – |
| Taxable Salary | 11,23,000 | 10,20,000 |
| Income-tax thereon | 1,46,900 | 1,16,000 |
| Add : Health and education cess @4% | 5,876 | 4,640 |
| Total payable | 1,52,776 | 1,20,640 |
S2: Difference of S1
| Particulars | Amount (rs) |
| Tax payable in A.Y.2019-20 on arrears: | |
| Tax on income including arrears (a) | 1,52,776 |
| Less : Tax on income excluding arrears(b) | (1,20,640) |
| Total | 32,136 |
S3: Computation of tax payable on arrears of salary for A.Y.2011-12
| Particulars | Including. arrears (Rs) | Excluding. arrears (Rs) |
| Taxable salary | 7,10,000 | 7,10,000 |
| Add: Arrears of salary | 1,03,000 | – |
| Taxable salary | 8,13,000 | 7,10,000 |
| Tax on the above | 97,900 | 76,000 |
| Add: Cess@3% | 2,937 | 2,280 |
| Tax payable | 1,00,837 | 78,280 |
S4: Difference of S3
| Particulars | Amount (rs) |
| Tax payable in A.Y.2011-12 | |
| Tax on income including arrears (a) | 1,00,837 |
| Less: Tax on income excluding arrears (b) | (78,280) |
| Total | 22,557 |
S5: Tax payable for A.Y.2019-20 after relief under section 89
| Particulars | Amount (rs) |
| Income-tax payable on total income including arrears of salary | 1,52,776 |
| Less : Relief under section 89 S2 – S4 i.e., (32,136 – 22,557) | 9,579 |
| Tax payable after claiming relief | 1,43,197 |
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