Releif u/s 89

SECTION 89

RELIEF FROM INCOME TAX PAYABLE WHEN SALARY / FAMILY PENSION / GRATUITY PAID IN ARREARS / ADVANCE

Persons Covered

 Any Assessee in receipt of any kind of salary or profits in lieu of salary or family pension or gratuity, which is received in arrears or in advance

Relevant Conditions

1. The assessee’s total income due to receipt of such arrears or advance gets assessed at a rate higher than that at which it would otherwise have been assessed.

2. The assessee being a government servant or an employee in a company, co-operative society, local authority, university, institution, association who is entitled to claim relief u/s. 89, may furnish to his employer, the particulars specified in Form 10E. The employer in such case shall compute the relief u/s. 89 on the basis of such particulars and take it into account while deducting TDS [vide section 192(2A)]

3. As per Circular No. 431 dated 12-9-1985, the relief u/s. 89 shall be admissible in respect of encashment of leave salary by an employee when in service.

4. The relief is to be given in the assessment in which the extra payment by way of arrears, advance etc., is taxed.

5. In order to claim relief, the assessee should send an application to concerned assessing officer on plain paper. 

Relevant Percentage/ Amount

Method of computation of relief u/s. 89 [Rule 21A].

Find out two rates of tax.

First is the rate of tax applicable to the extra amount (arrears or advance) in the year of receipt/ getting taxed.

Second is finding out the rate of tax on extra amount for the years to which they relate.

Difference between the two is extent of relief. The mode of computation of relief for different types of receipts is given below:—

A. In respect of salary/family pension paid in arrears/ advance {Additional Salary}

1. Calculate tax on total income, including the additional salary of the previous year in which the same is received;

2. Calculate the tax on total income as reduced by the additional salary of the previous year in which the same is received;

3. Calculate the difference between tax at (1) and (2). The resultant figure is tax on additional salary in the year of receipt;

4. Ascertain the previous years to which the additional salary relates;

5. Calculate the tax on the total income as increased by the relevant additional salary in respect of each such previous years and total up such taxes for all such previous years;

6. Calculate the tax on total income without including such additional salary in respect of each such previous years and total up the taxes for all such previous years;

7. Calculate the difference between tax at (5) and (6). The resultant figure is tax on additional salary for the year to which it pertains;

8. The excess of tax computed at (3) over the tax computed at (7) is the amount of relief admissible.