Taxation
This query is : Resolved
03 August 2015
what is the treatment of arrears salary received in subsequent year? and also the tax treatment?
14 July 2016
Your question "What is the treatment" is not clear. From whose point of view do you require the treatment? Payer or the recipient?
Arrears of salary are taxable in the year of receipt. One may claim relief under Section 89 on the salary arrears.
Arrears of salary are taxable in the year of receipt. One may claim relief under Section 89 on the salary arrears.
26 July 2025
The **treatment of arrears of salary** received in a **subsequent year** (i.e., for past years) is governed by specific provisions of the **Income Tax Act, 1961**. Here's a detailed explanation:
---
### ✅ **1. Taxability of Arrears of Salary**
* Arrears of salary are **fully taxable** under the head **"Income from Salaries"** in the year in which they are received.
* Even though they pertain to earlier years, they are taxed in the **year of receipt**.
---
### ✅ **2. Relief Under Section 89(1)**
To avoid higher tax liability due to the **bunching of income**, you can claim **relief under Section 89(1)**.
#### 🔹 When is Relief Allowed?
When **salary received in arrears** causes your **total income** to be **taxed at a higher slab rate**, you can apply for relief.
#### 🔹 How to Claim Relief:
1. Calculate **tax payable on total income including arrears** in the year of receipt.
2. Calculate **tax payable on total income excluding arrears**.
3. Compute the **difference** between these two = Extra tax due to arrears.
4. Now compute the **tax that would have been payable** if the arrears had been taxed in the respective years they pertain to.
5. The **relief under section 89(1)** is the **difference** between the extra tax due to arrears and the additional tax that would have been payable in those earlier years.
---
### ✅ **3. Required Forms and Compliance:**
* For claiming relief, you must **fill Form 10E** and submit it **online on the Income Tax Portal**.
* It is **mandatory** to file Form 10E before filing your Income Tax Return (ITR), if claiming relief.
---
### 🔍 **Example:**
Suppose in FY 2024–25 (AY 2025–26), you receive ₹1,50,000 as arrears for FY 2021–22.
* You include ₹1,50,000 in total salary income in FY 2024–25.
* You compute tax with and without the arrears.
* Then compute how much tax would have been payable in FY 2021–22 had you received the ₹1.5L then.
* The **difference is your relief under 89(1)**.
---
### 📌 Summary:
| Particular | Treatment |
| ------------------ | ---------------------------------------- |
| **Taxable Year** | Year of receipt |
| **Head of Income** | Income from Salary |
| **Relief** | Available u/s 89(1) |
| **Form Required** | Form 10E (mandatory for claiming relief) |
---
Would you like help calculating the Section 89(1) relief with numbers?
---
### ✅ **1. Taxability of Arrears of Salary**
* Arrears of salary are **fully taxable** under the head **"Income from Salaries"** in the year in which they are received.
* Even though they pertain to earlier years, they are taxed in the **year of receipt**.
---
### ✅ **2. Relief Under Section 89(1)**
To avoid higher tax liability due to the **bunching of income**, you can claim **relief under Section 89(1)**.
#### 🔹 When is Relief Allowed?
When **salary received in arrears** causes your **total income** to be **taxed at a higher slab rate**, you can apply for relief.
#### 🔹 How to Claim Relief:
1. Calculate **tax payable on total income including arrears** in the year of receipt.
2. Calculate **tax payable on total income excluding arrears**.
3. Compute the **difference** between these two = Extra tax due to arrears.
4. Now compute the **tax that would have been payable** if the arrears had been taxed in the respective years they pertain to.
5. The **relief under section 89(1)** is the **difference** between the extra tax due to arrears and the additional tax that would have been payable in those earlier years.
---
### ✅ **3. Required Forms and Compliance:**
* For claiming relief, you must **fill Form 10E** and submit it **online on the Income Tax Portal**.
* It is **mandatory** to file Form 10E before filing your Income Tax Return (ITR), if claiming relief.
---
### 🔍 **Example:**
Suppose in FY 2024–25 (AY 2025–26), you receive ₹1,50,000 as arrears for FY 2021–22.
* You include ₹1,50,000 in total salary income in FY 2024–25.
* You compute tax with and without the arrears.
* Then compute how much tax would have been payable in FY 2021–22 had you received the ₹1.5L then.
* The **difference is your relief under 89(1)**.
---
### 📌 Summary:
| Particular | Treatment |
| ------------------ | ---------------------------------------- |
| **Taxable Year** | Year of receipt |
| **Head of Income** | Income from Salary |
| **Relief** | Available u/s 89(1) |
| **Form Required** | Form 10E (mandatory for claiming relief) |
---
Would you like help calculating the Section 89(1) relief with numbers?
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Regarding Appointment of auditor in case of casual vacancy
- GST- DRC 03 RCM Liability
- RCM on GTA Services
- GST 9- Table 8
- Conversion of Proprietorship Firm to Partnership Firm
- Validity of form 15 G and 15 H on Interest on fixed deposit
- REVENUE RECOGNITION AS PER IND AS 115
- Query on managerial remuneration u/s 197 of CA 2013
- Updated return filing
- Supply to unit situated in SEZ
- GSTR 1- Amend Credit Note
- EXCESS CREDIT REALTED GST REVERSAL
- Export invoice not reported
- CA Articleship Extension Matter
- GST OFFICER WRONG NOTICE
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- Revision under Section 264 in The Income Tax Act, 1961
- TDS under section 195.
- Filing GST Returns after death of proprietor
Trending Online Classes
CAclubindia
