Arrears of salary

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Sneha Ramakrishnan (Querist)
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20 August 2015 Arrears of salary are taxed in the year they are received, but what if they are received before the due date of filing return in the AY say 2015-16 can be taxed and relief claimed for the corresponding PY 2014-2015? Or they are now to be taxed and claimed for PY 2015-16?

Sneha Ramakrishnan

Sneha Ramakrishnan (Querist)
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21 August 2015 Arrears of salary are taxed in the year they are received, but what if they are received before the due date of filing return in the AY say 2015-16 can be taxed and relief claimed for the corresponding PY 2014-2015? Or they are now to be taxed and claimed for PY 2015-16?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 In India, the taxation of arrears of salary depends on when they are received and the corresponding year to which they relate. Here’s how it generally works:

1. **Taxation of Arrears of Salary**:
- Arrears of salary are taxed in the year they are received, regardless of the year to which they relate.
- If arrears of salary relate to a previous year (PY), they are taxed in the year they are received (Assessment Year - AY), and relief can be claimed for the corresponding PY.

2. **Claiming Relief for Previous Year (PY)**:
- If arrears of salary are received in AY 2015-16 (for example), but they relate to PY 2014-15 (the year before), they should be included in the income for AY 2015-16.
- However, relief under Section 89(1) of the Income Tax Act, 1961 can be claimed for the tax payable on such arrears. This section allows for the computation of tax on the total income including the arrears received, and the difference between the tax so computed and the tax that would have been payable on the total income including the arrears had it been received in the relevant previous year can be claimed as relief.

3. **Procedure for Claiming Relief**:
- To claim relief under Section 89(1):
a. Compute the tax payable on the total income of AY 2015-16 including the arrears.
b. Compute the tax that would have been payable on the total income of PY 2014-15 including the arrears.
c. The difference between the taxes computed in steps (a) and (b) can be claimed as relief.
- This relief can be claimed while filing the income tax return for AY 2015-16.

### Example:
- Suppose arrears of salary for PY 2014-15 are received in FY 2015-16 (which corresponds to AY 2016-17).
- These arrears would be taxed in AY 2016-17.
- Relief for the tax on these arrears, calculated as per the provisions of Section 89(1), can be claimed in AY 2016-17.

### Conclusion:
Arrears of salary are taxed in the year they are received, but relief can be claimed for the corresponding previous year using Section 89(1) of the Income Tax Act. Therefore, if arrears of salary are received before the due date of filing return in AY 2015-16, they should be taxed in AY 2015-16, and relief can be claimed for the corresponding PY 2014-15. It’s advisable to consult with a tax advisor or CA for specific advice tailored to your situation and for assistance in claiming relief under Section 89(1) if applicable.

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