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Received Salary Arrears or Pension Arrears Find out how to claim tax relief

In view of the Sixth Pay Commission recommendations implemented by the Government, government employees have received salary arrears of past financial years. However, it is generally a matter of great confusion to such employees regarding how tax on arrears will be computed. This article attempts to shed some light upon the taxability issues and relief provided u/s 89 of I.T. Act.

Where an employee receives salary in arrears or even family pension as arrears, his total income increases and he is hence taxed at a higher slab, than what would normally be applicable if such arrears had not been received. To counter the additional tax burden put on the assessee in such a case, the Income Tax Act allows relief u/s 89 on such arrears.

This relief is provided in the financial year in which such arrears have been received. Also it should be noted that this deduction is available to every taxpayer who gets salary/ pension in advance or in arrears, whether such person is a government employee or is working in the private sector.

The procedure to calculate the amount of relief is laid down in rule 21A(2) as under:

1. Financial year in which such arrears/ advance are received

Compute tax on Total Income including arrears

Compute tax on Total Income excluding arrears

Find out the difference


2. Financial year to which such arrears/ advance are related

Compute tax on Total Income including arrears

Compute tax on Total Income excluding arrears

Find out the difference


3. Analysis:

If candgt;f, relief is admissible u/s 89 to the extent of c-f

If candlt;f, no="" relief="" is="" allowed.="" the="" andlt;span="" class="hiddenSpellError" pre="The "andgt;assessee-employee need not apply for relief.

How to claim tax relief u/s 89?

The assessee should send in an application on plain paper to the concerned Assessing Officer, stating the facts of the case. Such application may be submitted at the time of filing the return. The A.O. may ask for a true and authentic statement of the total income of the financial years to which the arrears pertain.

Besides receipt of salary or pension in advance or arrears, there are certain other conditions as well when relief u/s 89 can be availed of. These are:

Relief on receipt of excess gratuity for past service period of 15 yrs or more OR past service period of more than 5 yrs but less than 15 yrs.
Relief on receipt of compensation on termination of employment after continuous service period of 3 yrs or more.
Relief on receipt of commuted pension
Residual Cases – Where any payments are received by the employee other than the above 4 cases, relief is granted by the BOARD after examining each individual case.

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