Tax Relief Calculator u/s 89(1) on Arrears of Salary

Things you can do with this calculator

1 Relief Calculation of arrears of Salary

2 Printout of calculation

3 Form - 10 E and Printout

Instructions

1 Firstly enter the pay details in Six Pay Commission Arrears Calculator sheetData will will be automatically transferred to Relief Calculation sheet or you can skip entering details in Sixth Pay Commission Arrears Calculator Enter monthly arrears in Relief Calculation sheet in Yellow color cell

2

3 Fill all necessary details in white cells

STEP 1 If you get a message like below

Select Male or Female and incase of Senior Citzen Click YES or NO

If the Print button is not working please enable the macros as per the procedure is explained below in

Mircrosoft Office Excel 2003

click on OK

STEP 3 click on low OR if you click on Medium See Step 3 A

STEP 4 ( Last Step)

Close the Excel and Once again open Relief Calculation Software

click on PRINT BUTTON

click on Macro

click on Medium

click on OK

click on Low

STEP 1 Click on Options STEP 2

If the Print button is not working please enable the macros

as per the procedure is explained below in Mircrosoft Office Excel 2007

click on Options

click on Enable this Content

About the author

R. Venkatesh Reddy, Working in Income Tax Department Bangalore, KarnatakaContact E-mail : taxcalcindia@gmail.com or

Click on below to visit my website to download the updated Software

STEP 2 Go to Main Menu click on Tools

E-mail: taxcalc@rediffmail.com or

E-mail: taxcalc@in.com

Please enable the MACRO, for Printing through Print button on sheet

If the Print button is not working please enable the macros as per the procedure is explained below in

Mircrosoft Office Excel 2003

http://taxcalcindia.blogspot.com

CommandB2

Updated as on 30.09.2009

http://89reliefcalc.blogspot.com

STEP 3-A Click on Medium and Close the Excel Restart the software

STEP 4- A( Last Step) click on Enable Macros

click on Security

click on OK

Finally Click on PRINT Button

Click on Enable this content and OK Click on PRINT button

If the Print button is not working please enable the macros

as per the procedure is explained below in Mircrosoft Office Excel 2007

click on Enable this Content

click on OK

click on Enable Macros

Name Designation

Calculation of Relief under section 89(1)TAX ON ACCRUAL BASIS

Assessment Year 2010-11 2009-10 2008-09 2007-08 2006-07

Salary received excluding arrears 0 0 0 0 0 TOTAL

Add: Arrears of salary 0 0 0 0 0

Gross salary 0 0 0 0 0

Deductions

Tax on employment 0 0 0 0

Any other deductions u/s 10 & 17 0 0 0 0

Income chargeable under "Salaries" 0 0 0 0 0

Add: Other Income 0 0 0 0 0

Gross Total Income 0 0 0 0 0

Deductions under chapter VI-A (80 C etc) 0 0 0 0

Total Income 0 0 0 0 0

Tax on total income 0 0 0 0 0

Add - Surcharge 0 0 0 0 0

Tax with Surcharge 0 0 0 0 0

Add - Education cess 0 0 0 0 0 TOTAL

Tax with surcharge and cess 0 0 0 0 0 0

TAX ON RECEIPT BASISAssessment Year 2010-11 2009-10 2008-09 2007-08 2006-07

Salary excluding arrears 0 0 0 0 0

Add: arrears of salary on accrual basis 0

Gross salary 0 0 0 0 0

Deductions

Tax on employment 0 0 0 0 0

Any other deductions u/s 10 & 17 0 0 0 0 0

Income chargeable under "Salaries" 0 0 0 0 0

Add: Other Income 0 0 0 0 0

Gross Total Income 0 0 0 0 0

Deductions under chapter VI-A 0 0 0 0 0

Total Income 0 0 0 0 0

Tax on total income 0 0 0 0 0

Add - Surcharge 0 0 0 0 0

Tax with Surcharge 0 0 0 0 0

Add - Education cess 0 0 0 0 0 TOTAL

Tax with surcharge and cess 0 0 0 0 0 0

Total Tax on Receipt basis (A) 0Total Tax on Accrual basis (B) 0Tax relief u/s 89 {C = (A - B)} 0

Designed by: R. Venkatesh Reddy

FORM NO. 10 E[ See rule 21 AA ]

1 Name and address of the employee : 0

2 Permanent account number :

3 Residential status : Resident and Ordinarily Resident

Rs.1 a 0

b Payment in the nature of gratuity in respect of past services, extending NILover a period of not less than 5 years in accordance with the provisions of

sub-rule (3) of rule 21A

c Payment in the nature of compensation from the employer or former NILemployer at or in connection with termination of employment after

continuous service of not less than 3 years or where the unexpired portion

of term of employment is also not less than 3 years in accordance with the

provisions of sub-rule(4) of rule 21A

d Payment in commutation of pension in accordance with the provisions of NILsub-rule (5) of rule 21A

2 Detailed particulars of payments referred to above may be given in Annexure - I, I II,IIA, III or IV, as the case may be.

Signature of the employee

Verification

I, do hereby declare that what is stated above is true to the best of my knowledge and beliefVerified today, the day of ………………………………………….

Place:

Date:Signature of the employee

Particulars of income referred to in rule 21A of the Income tax rules, 1962, during the previous year relevant to assessment year 2010-11

Salary received in arrears or in advance in accordance with the provisions of sub-rule (2) of rule 21A

Designed by: R. Venkatesh Reddy

ANNEXURE - I( See item 2 of Form No. 10 E )

ARREARS OR ADVANCE SALARY

1 Total income (excluding salary received in arrears or advance) 0

2 Salary received in arrears or advance 0

3 Total income (as increased by salary received in arrears or advance) 0

4 Tax on total income (as per item 3) 0

5 Tax on total income (as per item 1) 0

6 0 [ Difference of item 4 and item 5 ]

7 Tax computed in accordance with Table “A” 0[ Brought from column 7 of Table “A” ]

8 Relief under section 89(1) N I LNote : If 7 is greater than 6, 8 is shown as NIL, instead of (-) minus figure

TABLE " A "[ See item 7 of Annexure ]

1 2 3 4 5 6

2005-06 0 0 0 0 0

2006-07 0 0 0 0 0

2007-08 0 0 0 0 0

2008-09 0 0 0 0 0

TOTAL

Tax on salary received in arrears or advance

Total Income of the relevant

previous year ( Rs)

Salary received in arrears or

advance relating to the previous

year as mentioned in

column (1) (Rs)

Total income (as increased by

salary received in arrears or advance) of

relevant previous year mentioned in Column 1

(Rs)

Tax on toal income [ as

per column (2)] (Rs.)

Tax on total income [ as per column (4)}

(Rs.)

Previous Year(s)

Designed by: R. Venkatesh Reddy

Signature of the employee

Verification

I, do hereby declare that what is stated above is true to the best of my knowledge and belief

Signature of the employee

Particulars of income referred to in rule 21A of the Income tax rules, 1962, during the

TABLE " A "[ See item 7 of Annexure ]

7

0

0

0

0

0

Difference in tax [Amount

under column (6) minus

amount under column (5)

(Rs.)

[F. No. 174/102/79-IT(A-I)], dated 22-3-1982.

PAID IN ARREARS OR IN ADVANCE

623. Scope of relief under the section in five situations explained

[F. No. 174/43/82-IT (A-II)], dated 12-9-1985.

Circular : No. 331

section 89 l RELIEF WHEN SALARY ETC., IS

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 residuary 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. 431

624. Relief in case of encashment of leave salary by an employee while in service - Whether admissible

1. Section 89(1) provides for relief to an assessee when salary, etc., is paid in arrears or in advance or if he receives in one financial year salary for more than 12 months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary and therefore, his income is assessed at a rate higher than at which it would have otherwise been assessed. This relief is granted by the Income-tax Officer on an application made to him in this behalf.

2. The question of admissibility of relief under section 89(1) in respect of amounts received on encashment of leave salary while in service was considered by the Board. The Board are advised that relief under section 89(1) read with rule 21A of the Income-tax Rules would be admissible in respect of encashment of leave salary by an employee when in service. The encashment of leave salary on retirement whether on superannuation or otherwise has already been exempted, by insertion of clause (10AA) in section 10, by the Finance Act, 1982 with effect from 1-4-1978.

The below FAQ is extracted from the book

Frequently Asked Questions about relief under section 89(1)

Qn.1

Ans

Qn. 2 What is the procedure for allowing relief under section 89(1)Ans.

(1) When salary is paid in Arrears (2) When salary is paid in Advance (3) When salary for more than 12 months is received

There was a wage revision in our office, as a result employees have received arrears. Can we allow relief by bifurcating the income to respective years

The employer is required to consider and allow relief under section 89(1), at the time of computing tax liability and tax deductible, where employee submits requisite Form 10 E as prescribed under Rule 21 A, furnishing particulars of his salary, etc, paid in advance or arrear. The following categories of employers are only empowered to consider and allow such relief: (a) Government; (b) Local Authority; (c) Co-operative Society; (d) University; (e) Institution, Association or Body; and (f) Company. In case of any other employer, the employee ( Assessee) himself has to apply for such 'Relief' in the prescribed Form 10 E as above, directly to his Assessing Officer in his personal assessment along with his return of income.

In the case assessee who receive income from salaries, under section 89(1) of the Income Tax Act provides for granting relief from income tax in the following circumstances

(4) When any payment in the nature of profit in lieu of salary (Example : accumulated balance paid from an unrecognised provident fund or payment of compensation) is paid

As a result of receipt of amount mentioned above, the income of an assessee suffer tax at a higher rate. Therefore, relief from tax is provided for in section 89(1).

TDS is not

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spectrum of topics Germane to the main theme

Procedure for granting relief under section 89(1) by the Employer

(i) The Employer should obtain an application from the employee in Form No. 10 E (ii) Relief should be worked out in the manner provided in Rule 21A

Method of Computing Relief Under Rule 21 A

When Salary is paid in Arrears

(iii) Find out the tax on the revised total income for each of the years

(v) Aggregate the differential tax arrived at in step No. (iv)

(vii) The resultant amount of tax would be the relief under section 89(1)

Qn. 3 To get relief under section 89(1) how to apply to CBDT. Is there any format ?Ans

Qn. 4

Ans

The relief has to be granted in accordance with the provisions contained in Rule 21A of the Income Tax Rules. Earlier to 01.06.1987, the employee had to seek this relief by making application for the purpose before the Income Tax Authorities only. However, w.e.f 01.06.1987, in the case of Government Servants and employees of Public Sector Undertakings(PSU), relief under this section could be given by the employers at the time of deducting tax at source. This is provided for under section 192(2A) of the Income Tax Act. This has been extended to all Companies, Co-operative Societies, Universities or Institutions ,etc w.e.f 01.06.1989.

(i) Calculate the tax on the total income first by including the arrears and then by excluding the arrears. Thereafter arrive at the differential tax

(ii) Apportion the arrears to the respective preceeding years to which the arrears relate and add such apportioned amount to the total income determined for those years

(iv) Find out the differential tax in respect of each of the year by deducting the tax determined on the total income of the respective earlier years from the tax arrived at in the step no (iii)

(vi) Deduct aggregate differential tax specified in step No (v) from the differential tax arrived at step No (i)

(viii) The relief worked out as above should be reduced from the tax payable by the employee on the total income which includes the arrears of salary and only the balance of tax is to be deducted at source

There is no need to apply to CBDT. The Employer (the specified category of Employers only) can himself allow relief under section 89, provided the employee furnishes the details in Form No. 10 E

I have received salary arrears this year pertaining to last three years. Can I spread may tax liability by claiming relief u/s 89(1) ? Is it also available for surcharge payable in this year ?

Yes, you can claim the relief, when it was not there. There is no restriction on claiming relief u/s 89(1) in respect of surcharge.

Qn. 5

Ans He can claim relief under section 89(1)

Qn.6

Ans. Yes, you can claim the relief u/s 89(1) as well as exemption u/s 10(10 C) alsoBut this has withdrawn from the Assessment Year 2010-11

Qn.7

Ans

Qn. 8

Ans The rebate can only be claimed in the year of receipt.

Qn. 9 Whether relief under section 89(1) is available from Leave Encashment ?Ans

Qn. 10

Ans.

An official had been paid excess salary of Rs. 35,000/- in the financial year 1995-96 in Madras. Accordingly the tax was also deducted in the year. Later on the excess salary was recovered in the financial year 1996-97 in Bangalore. What is the procedure for rebate ?

I am an ex-bank Employee, who had received a sum of Rs. 8 lakhs on VRS. I had claimed exemption on Rs. 5 Lakhs u/s 10(10 C) (viii). Can I claim relief u/s 89(1) on the balance amount ?

VRS and termination: Under a voluntary retirement scheme employees enjoyed an exemption of up to Rs 5 lakh on the lump sum received under section 10 (10C). They also enjoyed the benefits of Section 89, which allowed them to spread the arrears backward, as well as carry advances forward, in order to reduce the tax burden in a given year. The Budget has decided to do away with this double benefit and inserted a clause in Section 89 that does not allow the benefits under Section 10(10C) if the former is opted for.

This amendment will take effect from April 1, 2010, and will apply in relation to assessment year 2010-11 and subsequent years.

If an employee has paid rent in the previous year. Whether revised HRA rebate can be allowed for the relevant year ?

No. HRA rebate is based on the actual rend paid. Since the rent paid to the landlord can not be changed retrospectively. HRA rebate can not be reworked.

For Professional Tax deduction etc., out of arrears, whether the entire rebate to be allowed in the receipt year or can be apportioned to the previous years ?

Yes. In case of leave encashment, since the leave pertains to a number of years, a question of giving relief under section 89(1) could be available in such cases.

Clarified that relief under section 89(1) read with rule 21 A of Income Tax Rules would be admissible in respect of encashment of leave salary by an employee while in service

Assessee received compensation which included back wages. Whether TDS under section 192 is to be effected ?

To deduct tax at source under section 192, the assessee is entitled to spread over relief under section 89

Frequently Asked Questions about relief under section 89(1)

About the Book TDS is not TEDIOUS is best book

available on day to day problems on TDS questions answered covering a broad

spectrum of topics Germane to the main theme

Name Designation

Calculation of Relief under section 89(1)TAX ON ACCRUAL BASIS

Assessment Year 2010-11 2009-10 2008-09 2007-08 2006-07

Salary received excluding arrears 0 0 0 0 0 TOTAL

Add: Arrears of salary 0 0 0 0 0

Gross salary 0 0 0 0 0

Deductions

Tax on employment 0 0 0 0 0

Any other deductions u/s 10 & 17 0 0 0 0 0

Income chargeable under "Salaries" 0 0 0 0 0

Add: Other Income 0 0 0 0 0

Gross Total Income 0 0 0 0 0

Deductions under chapter VI-A 0 0 0 0 0

Total Income 0 0 0 0 0

Tax on total income 0 0 0 0 0

Add - Surcharge 0 0 0 0

Tax with Surcharge 0 0 0 0 0

Add - Education cess 0 0 0 0 0 TOTAL

Tax with surcharge and cess 0 0 0 0 0 0

TAX ON RECEIPT BASISAssessment Year 2010-11 2009-10 2008-09 2007-08 2006-07

Salary excluding arrears 0 0 0 0 0

Add: arrears of salary on accrual basis 0

Gross salary 0 0 0 0 0

Deductions

Tax on employment 0 0 0 0 0

Any other deductions u/s 10 & 17 0 0 0 0 0

Income chargeable under "Salaries" 0 0 0 0 0

Add: Other Income 0 0 0 0 0

Gross Total Income 0 0 0 0 0

Deductions under chapter VI-A 0 0 0 0 0

Total Income 0 0 0 0 0

Tax on total income 0 0 0 0 0

Add - Surcharge 0 0 0 0

Tax with Surcharge 0 0 0 0 0

Add - Education cess 0 0 0 0 0 TOTAL

Tax with surcharge and cess 0 0 0 0 0 0

Total Tax on Receipt basis (A ) 0Total Tax on Accrual basis (B) 0Tax relief u/s 89 {C = (A - B)} 0