Concept of Relief under section 89
1.Applicability for claiming Relief under section 89
- The employee’s salary is paid in arrears or in advance, and he receives salary for more than 12 months in one financial year, or,
- He is in receipt of profit in Lieu of salary U/s 17(3)
2. Eligible Receipts
- Arrears of Salary
- Advance Salary
- Leave Encashment while in service ( Circular No. 431/12-09-1985)
- Gratuity or Voluntary Retirement Compensation
- Any other Profit in Lieu of salary
- Family Pension in sec. 57, received in arrears
3.Claim of relief
The relief should be claimed by the employee by way of declaration in the prescribed Form 10E. Such claim can be made to the employee at the time of making TDS. The employee is bound to consider the claim of relief u/s 192(2A)
4. VRS vs Relief: When an Assessee claims exemptions u/s 10(10C) for VRS compensation, he is not eligible for relief u/s 89(1)
5.Computation of Relief, in case of receipt of Arrears/ Advance of Salary
[mable]Particuars,Amount in Rs.
1.Total Income for the year (excluding Arrears of Salary),XXX
2.Arrears of salary received relating to prior previous year,XXX
3.Total Income for the year (including Arrears of Salary),XXX
4.Tax on Total Income (Item No. 3) after Rebate-SC-EC & SHEC,XXX
5.Tax on total Income (Item No.1) afer rebate -SC-EC & Rebate,XXX
6.Difference between (4) and (5),XXX
7.Total Tax Computed as per column 7 of Table 2 below,XXX
8 Relief u/s 89 (6-7),XXX[/mable]
Computation of tax on Arrears for earlier previous years
[mable]Previous year,Total income excluding Arrers,Arrears of earlier years,Total income including Arrears,Tax on Income in Col.,Tax on Income in Col(2),Difference Col(5)-Col(6)
(1),(2),(3),(4),(5),(6),(7)[/mable]
Example:
Amit is an salaries employee and furnished following details for the previous year ended 31.03.2015
[mable]salary income as computed, 352000
Arrears of salary received (not included in the above ) relating to PY 2006-2007, 45000
Assessed Income for previous year 2006-2007,70 000
On 25.03.2015 amount deposited with PPF,50 000[/mable]
So the computation of relief is as follows:
[mable]Particuars,Amount in Rs.
1.Total Income for the year (excluding Arrears of Salary),302000
2.Arrears of salary received relating to prior previous year,45000
3.Total Income for the year (including Arrears of Salary),347000
4.Tax on Total Income (Item No. 3) after Rebate-SC-EC & SHEC(as per note below),7930
5.Tax on total Income (Item No.1) afer rebate SC-EC & Rebate(as per note below),3300
6.Difference between (4) and (5),4630
7.Total Tax Computed as per column 7 of Table 2 below,1530
8 Relief u/s 89 (6-7),3100[/mable]
[mable]Previous year,Total income excluding Arrers,Arrears of earlier years,Total income including Arrears,Tax on Income in Col.,Tax on Income in Col(2),Difference Col(5)-Col(6)
(1),(2),(3),(4),(5),(6),(7)
2006-2007,70000,45000,115000,1530,Nil,1530[/mable]
[mable]particulars,Inlcuding Arrears,Excluding Arrears
Gross Total Income,397000,352000
Less:Deduction u/s 80C-PPF,(50000),(50000)
Total income,347000,302000
Tax on Total Income,9700,5200
Less:Rebate u/s 87A,(2000),(2000)
Tax payable,7700,3200
Add:EC,154,64
Add:SHEC,77,32
Total Tax Payable,7930,3300[/mable]
Assume that tax rates for previous year 2006-07 are : First 1 lac –Nil, Next 50,000- 10%, Next 1 Lac-20%, on the balance -30%. EC-2% & SHEC-1%.