Download Automated Arrears Relief Calculator From The Financial Year 2000-01 to Financial Year 2015-16 with Form 10E.
It is the amount deducted from tax payable for the year in which it is received. The detail provision as to applicability and manner of availing this relief is in section 89 and further mode of computation is given in rule 21A. Here an attempt is made to explain this concept with the help of practical case study.

When relief can be used

This relief can be avail in the following cases:
  1. An individual receives any portion of his salary in arrears or
  2. Salary received in advance or
  3. Salary received in the form of profit in lieu of salary
  4. When a salaried employee received gratuity in the following cases
    • Where gratuity payable is in respect of past service of 15 years or more
    • Where such period is 5 years or more but less than 15 Years
  5. Compensation received on termination of employment
  6. Payment received in commutation of pension
  7. Any other cases where CBDT may allow

Computation of relief when salary has been received in arrears or in advance

The relief on salary received in arrears or in advance is computed as under:
  1. Calculate the tax payable on the total income, including the salary received in arrears or in advance, of the relevant previous year in which the same is received.
  2. Calculate the tax payable on the total income, excluding the salary received in arrears or in advance, of the relevant previous year in which the additional salary is received.
  3. Find out the difference between tax at (1)and (2).
  4. Compute the tax on the total income after including the salary received in arrears or in advance in the previous year to which such salary relates.
  5. Compute the tax on the total income after excluding the additional salary in the previous year to which such salary relates.
  6. Find out the difference between tax at (4) and (5).
  7. Amount of relief: The excess of tax computed at (3)over tax computed at (6)
No relief is, however admissible if tax computed at (3) is less than tax computed at (6)
If the additional salary relates to more than one previous year, salary would be spread over the previous year to which it pertains in the manner explained above.