Here is a case of a pensioner who has recd arrears this financial year from Jan 2006 onwards & who turned a senior citizen in 2007.
In case he chooses to use Sec 89 and spread over the arrears for F.Y. 07-08 & 08-09 to these years & add the arrears of F.Y. 05-06 & 06-07 to this financial year he is liable to pay less tax than in case where he spreads the entire arrears from F.Y. 05-06 onwards since he turned senior citizen in F.Y. 07-08.
Will this be accepted by the income tax department ?
Dear Rishi,
Great query..
First of all relief u/s 89 is not mandatory to claim..It is the option of the Assessee....Hence In view of this I think it would be acceptable...
Interesting to see the reply of other members..
Yes Amir,even I am eager to hear what others have to say about this.
I know it's not mandatory to make use of Sec 89 for arrears in which case your income for this year will get clubbed with the arrears.
But in this particular case the person is benefitting by the fact that he will be taxed under senior citizen category for the current & previous two years.
So, if he spreads the arrears to only the past two years (when he turned sr ctzn) & adding the rest of the arrears to this years income will be legally acceptableto the income tax department or not ?
Dear Rishi,
I think ur query is the perfect example of difference between Tax Planning & Tax Avoidance...
Needless to say ur case falls in the later one..
It's not really tax avoidance per se.
As it is , the peson could not have done tax planning 3-4 years earlier for the arrears he was going to receive in coming years ,especially when he had no idea how much & when he was going to get it.
Here he would be just making use of a provision which the deparment itself provides for arrears, legally that is.
Well, the question here really is whether it is acceptable or not ?
Dear Rishi,
Tax avoidance means bringing down ur Tax liability without overriding law & at the same time exploting the loopholes i:e the benifts which were not intended by legistature...
I feel it will be acceptable...
Sorry , I thought otherwise.
Thanks for clarifying.
CAclubindia
