section 89[1] of income tax act
This query is : Resolved
24 January 2011
I HAD RECEIVED SALARY ARREARS FOR LAST THREE YEARS IN THE FINANCIAL YEAR 2010-11.
THE ARREARS INCLUDES TRANSPORT ALLOWANCE & MEDICAL BENIFIT FOR RESPECTIVE PREVIOUS YEARS. IF ARREARS ON TRANSPORT ALLOWANCE & MEDICAL BENIFIT ARE TAKEN TO RESPECTIVE YEARS THEY FALL BELOW THE EXEMPTION LIMITS OF rS 9600 & 15000 RESPECTIVELY.[THESE ARREARS IN THE CURRENT YEAR CROSS EXEMPTION LIMITS]. MY 2 QUERIES ARE
1. IS ARREARS ON TRANSPORT ALLOWANCE & MEDICAL BENEFIT EXEMPTED WHILE SPREADING INCOME OVER RESPECTIVE YEARS FOR CALCULATION OF RELIEF UNDER SECTION 89[1]
2. CAN ARREARS OF TWO YEARS ONLY BE SPREAD WHILE ONE YEAR IS RETAINED ALONG WITH CURRENT YEAR INSTEAD OF SEEKING RELIEF UNDER SECTION 89[1]FOR THAT ONE PARTICULAR YEAR OF ARREARS RECEIVED?
2.
THE ARREARS INCLUDES TRANSPORT ALLOWANCE & MEDICAL BENIFIT FOR RESPECTIVE PREVIOUS YEARS. IF ARREARS ON TRANSPORT ALLOWANCE & MEDICAL BENIFIT ARE TAKEN TO RESPECTIVE YEARS THEY FALL BELOW THE EXEMPTION LIMITS OF rS 9600 & 15000 RESPECTIVELY.[THESE ARREARS IN THE CURRENT YEAR CROSS EXEMPTION LIMITS]. MY 2 QUERIES ARE
1. IS ARREARS ON TRANSPORT ALLOWANCE & MEDICAL BENEFIT EXEMPTED WHILE SPREADING INCOME OVER RESPECTIVE YEARS FOR CALCULATION OF RELIEF UNDER SECTION 89[1]
2. CAN ARREARS OF TWO YEARS ONLY BE SPREAD WHILE ONE YEAR IS RETAINED ALONG WITH CURRENT YEAR INSTEAD OF SEEKING RELIEF UNDER SECTION 89[1]FOR THAT ONE PARTICULAR YEAR OF ARREARS RECEIVED?
2.
25 January 2011
The purpose of Sec 89(1) is to calculate the tax , assumong that the income was received in the year of due. You have to calculate tax based on individual year as per tax provisions in those years. After that tazx arrise as per current year is to calculate and diff. is 89(1) benefit.
2. You cannot do this, You have to go for all the years.
2. You cannot do this, You have to go for all the years.
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25 January 2011
1. yes T.A. & medical allowance is to be taken as exempted during calculation.
2. No you can not do this.
2. No you can not do this.
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25 January 2011
1)the purpose of section 89 is to give relief to taxpayer for paying tax in excess of what he ought to have paid if he had recived the arrears in their respective years.
under sec you are recalculating the taxable income and tax theron for repective previous years
so the exemption you sought in your question will automatically be taken care of.
2) you can not club the arrear salary with the current year salary
under sec you are recalculating the taxable income and tax theron for repective previous years
so the exemption you sought in your question will automatically be taken care of.
2) you can not club the arrear salary with the current year salary
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25 January 2011
IF TRANSPORT ALLOWANCE & MEDICAL BENIFIT RECEIVED AS ARREARS IN PREVIOUS FINANCIAL YEARS IS EXEMPTED WHILE CALCULATING SECTION 89[1] RELIEF , THEN WHY IS SECTION 80C BENIFIT OF THOSE YEARS ARISEN DUE TO DEDUCTION TOWARDS PROVIDENT FUND FROM ARREARS RECIVED FOR RESPECTIVE PREVIOUS YEARS NOT GIVEN . i.e. 80C BENIFIT NOT GIVEN WHILE SPREADING ARREARS TO RESPECTIVE YEARS . USING THE SAME LOGIC OF EXEMPTION ELIGIBLE IN THOSE YEARS FOR T.A AND MEDICAL BENIFIT, THE 80C BENIFIT ALSO SHOULD HAVE BEEN GIVEN????
23 July 2025
Your question about **Section 89(1)** of the Income Tax Act, 1961 raises two important points related to:
1. **Treatment of exempt allowances (Transport Allowance and Medical Reimbursement) in arrears**, and
2. **Non-consideration of Section 80C deductions (like PF) in those previous years** while computing the relief.
Let's take each issue one at a time:
---
### ✅ **1. Are Arrears of Transport Allowance & Medical Reimbursement Exempt Under Section 89(1)?**
**Yes.**
When calculating relief under **Section 89(1)**, the arrears are notionally **allocated back to the respective financial years** to which they relate.
While doing this:
* The **tax computation is done as if** the arrears were received in those **previous years**, not in the current year.
* Therefore, **exemption limits applicable in those years** for allowances like:
* **Transport Allowance** (e.g. ₹800 p.m. till FY 2017-18)
* **Medical Reimbursement** (e.g. ₹15,000 p.a. till FY 2017-18)
…should be **considered for tax exemption** as per the rules **in force in those respective years**.
✅ So yes — **you are eligible to claim exemption for TA & Medical Reimbursement arrears**, year-wise, **as per limits then applicable**.
---
### ❌ **2. Why are 80C Deductions (like PF) Not Allowed Year-Wise While Calculating Section 89(1) Relief?**
**Short Answer:**
Because **Section 89(1) relief is only on the incremental tax due to arrears**, not a full re-computation of the entire income for past years with deductions.
Let’s explain:
#### 🔍 Relief under Section 89(1) is calculated as:
> **Relief = (Tax payable on total income including arrears in current year) – (Tax payable on total income excluding arrears)**
> minus
> **Sum of differences between tax payable in respective previous years with and without arrears**
So, while you recalculate the **tax impact of adding arrears** in each earlier year, it is **not a full reassessment** of total income and deductions like 80C in those years.
🔸 Specifically:
* **You do not "re-claim" deductions under 80C** for past years while computing relief under Section 89(1).
* Because: Many of those deductions (e.g. PF) may have **already been claimed** in the actual return filed in those years.
* If allowed again, it would amount to **double deduction**.
📌 However, **exempt incomes** like TA or Medical Reimbursement are **specifically linked to receipts**, not investments. Hence, they **must be adjusted** in their respective years.
---
### 📚 CBDT Circular Reference (for clarity):
**CBDT Circular No. 8/2010**, dated 13 December 2010 clarifies:
* The exemption limits and tax rates as applicable to those **respective previous years** will be used for 89(1) relief.
* However, **deductions under Chapter VI-A (like 80C)** are allowed **only to the extent claimed** in that year.
---
### ✅ Summary
| Issue | Treatment |
| --------------------------------- | -------------------------------------------------------------------------------------------- |
| **Transport & Medical Allowance** | ✅ Exempt based on **limits in respective years** |
| **80C Deductions (e.g. PF)** | ❌ Not re-allowed while calculating 89(1) relief (already claimed or not relevant to arrears) |
| **Splitting arrears selectively** | ❌ Not permitted. Must allocate full arrears to respective years for relief computation |
---
If you'd like, I can help you with:
* A sample **Form 10E** (required to claim Section 89(1) relief),
* A working sheet for calculating the **relief year-wise**,
* Or guidance on how to report this in your ITR.
Let me know!
1. **Treatment of exempt allowances (Transport Allowance and Medical Reimbursement) in arrears**, and
2. **Non-consideration of Section 80C deductions (like PF) in those previous years** while computing the relief.
Let's take each issue one at a time:
---
### ✅ **1. Are Arrears of Transport Allowance & Medical Reimbursement Exempt Under Section 89(1)?**
**Yes.**
When calculating relief under **Section 89(1)**, the arrears are notionally **allocated back to the respective financial years** to which they relate.
While doing this:
* The **tax computation is done as if** the arrears were received in those **previous years**, not in the current year.
* Therefore, **exemption limits applicable in those years** for allowances like:
* **Transport Allowance** (e.g. ₹800 p.m. till FY 2017-18)
* **Medical Reimbursement** (e.g. ₹15,000 p.a. till FY 2017-18)
…should be **considered for tax exemption** as per the rules **in force in those respective years**.
✅ So yes — **you are eligible to claim exemption for TA & Medical Reimbursement arrears**, year-wise, **as per limits then applicable**.
---
### ❌ **2. Why are 80C Deductions (like PF) Not Allowed Year-Wise While Calculating Section 89(1) Relief?**
**Short Answer:**
Because **Section 89(1) relief is only on the incremental tax due to arrears**, not a full re-computation of the entire income for past years with deductions.
Let’s explain:
#### 🔍 Relief under Section 89(1) is calculated as:
> **Relief = (Tax payable on total income including arrears in current year) – (Tax payable on total income excluding arrears)**
> minus
> **Sum of differences between tax payable in respective previous years with and without arrears**
So, while you recalculate the **tax impact of adding arrears** in each earlier year, it is **not a full reassessment** of total income and deductions like 80C in those years.
🔸 Specifically:
* **You do not "re-claim" deductions under 80C** for past years while computing relief under Section 89(1).
* Because: Many of those deductions (e.g. PF) may have **already been claimed** in the actual return filed in those years.
* If allowed again, it would amount to **double deduction**.
📌 However, **exempt incomes** like TA or Medical Reimbursement are **specifically linked to receipts**, not investments. Hence, they **must be adjusted** in their respective years.
---
### 📚 CBDT Circular Reference (for clarity):
**CBDT Circular No. 8/2010**, dated 13 December 2010 clarifies:
* The exemption limits and tax rates as applicable to those **respective previous years** will be used for 89(1) relief.
* However, **deductions under Chapter VI-A (like 80C)** are allowed **only to the extent claimed** in that year.
---
### ✅ Summary
| Issue | Treatment |
| --------------------------------- | -------------------------------------------------------------------------------------------- |
| **Transport & Medical Allowance** | ✅ Exempt based on **limits in respective years** |
| **80C Deductions (e.g. PF)** | ❌ Not re-allowed while calculating 89(1) relief (already claimed or not relevant to arrears) |
| **Splitting arrears selectively** | ❌ Not permitted. Must allocate full arrears to respective years for relief computation |
---
If you'd like, I can help you with:
* A sample **Form 10E** (required to claim Section 89(1) relief),
* A working sheet for calculating the **relief year-wise**,
* Or guidance on how to report this in your ITR.
Let me know!
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