scorecardresearchHow to claim income tax relief on advance and other salary arrears?

How to claim income tax relief on advance and other salary arrears?

Updated: 05 Jul 2023, 08:49 AM IST

You can claim income tax relief on various sources of income such as salary arrears, advance salary, family pension arrears, compensation on termination, and more.

How do you claim income tax relief on advance salary, arrears, and more?

How do you claim income tax relief on advance salary, arrears, and more?

The deadline for submitting the Income Tax Return (ITR) for the financial year 2022-23 or assessment year 2023-24 is approaching rapidly on July 31, 2023. It is crucial to file the ITR form promptly in order to expedite the process of receiving the ITR refund at the earliest.

When filing the ITR, it is of utmost importance to carefully consider all potential income tax reliefs, including salary arrears such as advance salary, bonus, family pension arrears, compensation on termination, and other applicable factors.

Income tax and investment experts provide clarification that income tax is levied on an individual's total earnings for the year. According to Section 89(1) of the income tax act, individuals have the chance to seek tax relief on payments received as past dues resulting from delays.

If someone is eligible for income tax relief on salary arrears, they can conveniently claim it in their current year's Income Tax Return (ITR) by completing and submitting Form 10E as per the requirements of the Income Tax Act, 1961. It is crucial to note that the submission of Form 10E is mandatory to avail the income tax relief for delayed payments.

Seeking relief under Section 89

Under Section 89(1) of the Act, individuals can benefit from relief when receiving past income in the current year due to changes in taxation laws. This relief is granted by recalculating the tax liability on such arrears of income based on the taxation rules applicable in both the year of receipt and the year to which the income belongs. If there is an increase in the tax liability due to changes in taxation rules in the year of receipt, it is permitted as relief under Section 89(1).

Upon receiving an advance salary, employees must recognize it as taxable income in the year of receipt. Nevertheless, if the employee repays the advanced amount in subsequent years, they can seek relief for the repaid sum in those particular years, subject to certain conditions.

The computation of income tax liabilities depends on the total income earned by a taxpayer in a given financial year. If the taxpayer has received salary arrears, advance salary, or Family Pension arrears, they can claim tax relief under section 89(1) of the Income Tax Act. To avail of the benefits outlined in Section 89(1), it is mandatory to file Form 10E. You can easily submit this form electronically through the income tax e-filing portal, providing a convenient and streamlined process.

How to claim relief on salary arrears?

The calculation of tax is based on the entirety of your income received within the year. If your total income includes any past dues that were paid during the current year, there might be concerns about potentially higher tax liability on such arrears, especially considering that tax rates have generally increased over the years.

To alleviate the additional tax burden caused by delayed income, tax laws provide relief under Section 89(1). If you have received any portion of your salary as arrears or in advance, or if you have received a family pension in arrears, Section 89(1) in conjunction with Rule 21A allows for certain tax relief to be claimed.

In straightforward terms, you are exempted from paying additional taxes due to delayed payments. If an individual qualifies for tax relief on the salary received in arrears or in advance, it is necessary to complete Form 10E. Filling out Form 10E is mandatory when seeking tax relief under Section 89(1) of the Income Tax Act 1961. Section 89(1) offers tax relief for delayed salary received as arrears or for receiving a family pension in arrears.


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First Published: 05 Jul 2023, 08:49 AM IST