Section 89 of the Income Tax Act is an important provision that allows taxpayers to seek relief from the tax department for any additional tax liabilities arising from their receipt of salary or pension arrears. This provision is particularly useful in situations where the taxpayer receives a lump sum payment of arrears of salary or pension due to a delayed or revised salary structure, or on account of retirement, resignation or termination of employment.
Let us take a closer look at the provisions of Section 89 of the Income Tax Act and understand its applicability and benefits in greater detail.
Applicability of Section 89
Section 89 of the Income Tax Act is applicable to salaried individuals and pensioners who have received arrears of salary or pension in a particular financial year. The provision allows them to calculate their tax liability for the relevant financial year in two ways – first, by considering the arrears amount as part of their total income for that year; and second, by calculating their tax liability for each of the years to which the arrears relate and considering the difference between the two tax liabilities as relief.
Benefits of Section 89
Section 89 offers several benefits to taxpayers who receive arrears of salary or pension. These benefits include:
Reduction of tax liability: Section 89 allows taxpayers to reduce their tax liability by calculating their tax liability for each year to which the arrears relate and claiming the difference as relief. This can significantly reduce the overall tax liability of the taxpayer.
Avoidance of additional tax liabilities: In the absence of Section 89, taxpayers receiving arrears of salary or pension would be subject to additional tax liabilities due to the accumulation of income in a particular year. However, with the provisions of Section 89, taxpayers can seek relief from such additional tax liabilities.
Cash flow benefits: Taxpayers can avail of cash flow benefits as they can spread out their tax liability over a period of time by claiming relief under Section 89.
Procedure for claiming relief under Section 89
The following steps need to be followed to claim relief under Section 89:
Calculate the tax liability for the relevant financial year by including the arrears amount in the total income.
Calculate the tax liability for each of the years to which the arrears relate by excluding the arrears amount from the total income.
Compute the difference between the two tax liabilities.
Claim relief under Section 89 by submitting Form 10E along with the income tax return.
In addition to the benefits mentioned above, Section 89 of the Income Tax Act also offers a few more advantages for taxpayers. Let’s take a look at them.
Taxpayers can claim relief for both salary and pension arrears: Section 89 offers relief to both salaried individuals and pensioners who receive arrears. This means that irrespective of whether the taxpayer is a salaried individual or a pensioner, they can claim relief under Section 89.
Relief is available for past years: Taxpayers can claim relief under Section 89 for arrears received in the current financial year as well as for arrears received in the past financial years. However, it is important to note that relief can only be claimed for arrears that have not been previously taxed.
Relief is available for tax deducted at source (TDS): Taxpayers who have already paid TDS on the arrears amount can claim relief under Section 89. This can help taxpayers to recover the excess tax deducted from their salary or pension arrears.
Relief is available for both regular and additional income tax: Taxpayers can claim relief under Section 89 for both regular and additional income tax. This means that taxpayers can claim relief for any additional tax liability arising from the receipt of salary or pension arrears, irrespective of whether it is regular or additional tax.
Conclusion
Section 89 of the Income Tax Act offers a valuable opportunity for taxpayers to seek relief from additional tax liabilities arising from the receipt of arrears of salary or pension. Taxpayers can benefit from the provisions of this section by reducing their tax liability, avoiding additional tax liabilities and availing of cash flow benefits. However, it is important to follow the correct procedure and file the necessary forms to claim relief under this provision.
In conclusion, Section 89 of the Income Tax Act is an important provision that provides relief to taxpayers who receive arrears of salary or pension. It offers several benefits, including reduction of tax liability, avoidance of additional tax liabilities, cash flow benefits, and more. Taxpayers can claim relief under this provision by following the correct procedure and filing the necessary forms. By doing so, taxpayers can ensure that they do not end up paying excess tax and can enjoy the benefits of Section 89.
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Frequently Asked Questions (FAQs)
What is Section 89 of the Income Tax Act?
Section 89 of the Income Tax Act is a provision that allows taxpayers to seek relief from any additional tax liability arising from the receipt of salary or pension arrears. This provision applies to both salaried individuals and pensioners.
Who can claim relief under Section 89?
Any taxpayer who has received arrears of salary or pension can claim relief under Section 89. However, the arrears must relate to a particular financial year.
How can I claim relief under Section 89?
To claim relief under Section 89, taxpayers need to file Form 10E along with their income tax return. The form should contain the necessary details such as the arrears received, the years to which the arrears relate, and the tax liability for each year.
What is the benefit of claiming relief under Section 89?
Claiming relief under Section 89 can help taxpayers to reduce their tax liability, avoid additional tax liabilities, and enjoy cash flow benefits. Taxpayers can also claim relief for both regular and additional income tax.
Is relief under Section 89 available for past years?
Yes, relief under Section 89 is available for arrears received in the past financial years. However, relief can only be claimed for arrears that have not been previously taxed.
Can I claim relief under Section 89 if TDS has already been deducted?
Yes, taxpayers who have already paid TDS on the arrears amount can claim relief under Section 89. This can help taxpayers to recover the excess tax deducted from their salary or pension arrears.
Is relief under Section 89 available for all types of arrears?
No, relief under Section 89 is not available for all types of arrears. For example, relief cannot be claimed for gratuity or retrenchment compensation.
What is the deadline for claiming relief under Section 89?
There is no specific deadline for claiming relief under Section 89. However, taxpayers should claim relief in the same financial year in which they receive the arrears.
