10E calculation

To calculate the tax relief under Section 89(1) of the Income Tax Act for salary arrears received in the current year, you must determine how much additional tax you are paying due to receiving the arrears in a lump sum. The relief essentially allows you to pay tax as if the salary had been received in the years it was originally due.

Steps to Calculate Relief u/s 89(1)

1. Calculate tax on total income in the year of receipt:

   • (A) Calculate tax payable on your total income of the current year, including the arrears.

   • (B) Calculate tax payable on your total income of the current year, excluding the arrears.

   • (C) Find the difference: (A - B). This is the additional tax you are currently paying because of the arrears.

2. Calculate tax on income for the years to which arrears relate:

   • (D) For each relevant past financial year, calculate the tax payable on your total income of that year, excluding the arrears.

   • (E) For each relevant past financial year, calculate the tax payable on your total income of that year, including the applicable portion of the arrears.

   • (F) Find the difference for each year: (E - D).

3. Determine the final relief:

   • Calculate the total of all differences from Step 2 (i.e., the sum of all "F" values).

   • Your relief is the difference between your current additional tax (C) and the sum of the past years' additional tax (sum of F).

   • Note: If the tax computed at Step 2 is more than the tax computed at Step 1, no relief is allowed.

Important Requirements

• File Form 10E: It is mandatory to file Form 10E on the official Income Tax e-filing portal before you submit your Income Tax Return (ITR). If you claim relief in your ITR without filing Form 10E, the tax department may disallow the claim.

• Documentation: Keep records of your salary slips, Form 16, and the calculation methodology used, as you may need these for verification.

• Online Process: The entire process—calculating the relief and submitting Form 10E—is done online via the Income Tax e-Filing Portal.

Summary

To claim relief, you must calculate the difference in tax liability caused by receiving arrears in one year versus the years they were earned. You then file Form 10E online through the Income Tax e-filing portal before filing your ITR to legally claim this relief.