Relief u/s 89 for Advance Salary
This query is : Resolved
16 February 2011
Relief u/s 89 is available for Arrears of salary and Advance Salary.
In all the text books example given for calculation of relief amount for arrears of salary
I would like to know, how to calculate relief for advance receipt of Salary??
In all the text books example given for calculation of relief amount for arrears of salary
I would like to know, how to calculate relief for advance receipt of Salary??
17 February 2011
Pl see rule 21A(2)(c) of the Income tax Rules,1962.
17 February 2011
Sir, by reading of that rule i understand that for salary relief cannot be claimed in the year of receipt.. we need to wait for relevant (year for which adv salary is given) previous and then only can calculate the relief.
Is that understanding right??
Is that understanding right??
21 July 2025
Great question! Here’s how relief under section 89 works for advance salary, with specific focus on your doubts:
Relief under Section 89 for Advance Salary — Key points:
Section 89(1) provides relief when salary is received in advance (for future years) or arrears (for past years) to avoid higher tax burden due to lump sum receipt.
The calculation for advance salary is explained under Rule 21A(2)(c) of the Income Tax Rules, 1962.
How to calculate relief for advance salary?
Identify the year of receipt — the year in which the advance salary is received and included in income.
Identify the year(s) for which advance salary relates — the future years for which the salary has been paid in advance.
The relief calculation involves re-computing tax for each year to which the advance salary relates, as if the salary had been received normally in those years.
Formula:
Relief = [Tax on total income including advance salary in year of receipt]
− [Tax on total income excluding advance salary in year of receipt]
− Σ [Tax on total income including advance salary of each relevant year]
You essentially:
Calculate tax on actual income including advance salary in year of receipt.
Calculate tax on income excluding advance salary in year of receipt.
Calculate tax for each year to which advance salary relates, adding the advance salary to those years’ incomes.
The relief is the difference.
Your understanding:
"For salary relief cannot be claimed in the year of receipt.. we need to wait for relevant (year for which adv salary is given) previous and then only can calculate the relief."
Not exactly.
You claim relief in the year of receipt itself, but to calculate the relief properly, you have to recompute tax for the relevant future years (for which salary is received in advance). This means you look back at the relevant future years’ income to calculate what tax would have been if salary was received normally in those years.
So, relief is claimed in the year of receipt, but its calculation involves hypothetical recomputation of tax for the future years concerned.
Relief under Section 89 for Advance Salary — Key points:
Section 89(1) provides relief when salary is received in advance (for future years) or arrears (for past years) to avoid higher tax burden due to lump sum receipt.
The calculation for advance salary is explained under Rule 21A(2)(c) of the Income Tax Rules, 1962.
How to calculate relief for advance salary?
Identify the year of receipt — the year in which the advance salary is received and included in income.
Identify the year(s) for which advance salary relates — the future years for which the salary has been paid in advance.
The relief calculation involves re-computing tax for each year to which the advance salary relates, as if the salary had been received normally in those years.
Formula:
Relief = [Tax on total income including advance salary in year of receipt]
− [Tax on total income excluding advance salary in year of receipt]
− Σ [Tax on total income including advance salary of each relevant year]
You essentially:
Calculate tax on actual income including advance salary in year of receipt.
Calculate tax on income excluding advance salary in year of receipt.
Calculate tax for each year to which advance salary relates, adding the advance salary to those years’ incomes.
The relief is the difference.
Your understanding:
"For salary relief cannot be claimed in the year of receipt.. we need to wait for relevant (year for which adv salary is given) previous and then only can calculate the relief."
Not exactly.
You claim relief in the year of receipt itself, but to calculate the relief properly, you have to recompute tax for the relevant future years (for which salary is received in advance). This means you look back at the relevant future years’ income to calculate what tax would have been if salary was received normally in those years.
So, relief is claimed in the year of receipt, but its calculation involves hypothetical recomputation of tax for the future years concerned.
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