WHAT IS THE ACTUAL CALCULATION OF ARREARS RELIEF U/S 89(1) AND WHAT'S THE PROCEDURE TO CALCULATE THE ARREARS RELIEF WHICH IS GET THE AMOUNT OF AN EMPLOYEE BEHIND HIS PREVIOUS YEARS.
HERE IS GIVEN BELOW THE AUTOMATIC ARREARS RELIEF CALCULATOR SINCE THE FINANCIAL YEAR 2000-01 TO FY 2015-16 WITH FORM 10E.
BELOW GIVEN THE METHOD OF CALCULATION U/S 89(1)AS PER THE INCOME TAX RULES.
SECTION 89 l RELIEF WHEN SALARY ETC., IS
PAID IN ARREARS OR IN ADVANCE
Scope of relief under the section in five situations explained
1.
Section 89(1) authorises grant of relief in a case where an employee
receives salary in arrears or in advance or has received in any
financial year salary for more than twelve months, a payment which under
the provisions of section 17(3)(ii) is a profit in lieu of
salary. The effect of such increase is that the income will be assessed
at a higher rate than it otherwise would have been assessed and it is
for this reason that section 89(1) authorises relief to be allowed. The
relief is to be allowed in terms of rule 21A of the Income-tax Rules,
1962.
2.
Rule 21A(1) enumerates the following five different situations wherein
the assessees will be entitled to relief (four of these are specific
situations while the fifth is a residuary one) :
a. salary being received in arrears or advance;
b.
where the payment is in the nature of gratuity in respect of past
services extending over a period of not less than five years is
received;
c.
where the payment is in the nature of compensation received by the
employee from his employer or former employer at or in connection with
termination of his employment after continuous service of not less than
three years and where the unexpired portion of the term of employment is
also not less than three years;
d. where the payment is in the nature of commutation of pension;
e. where the payment is not covered by the description given in (a) to (d) above.
The relief is to be worked out in the first four situations in accordance with the specific modes described in rule 21A (2)(a) to (d).
3.
The authority to grant relief in the four specific cases is the
Income-tax Officer assessing the employee. In the residua case, it is
Central Board of Direct Taxes.
4. The relief
under section 89(1) is to be given in the assessment in which the extra
payment by way of arrears, advance, etc., is taxed. The
mode of granting relief spelt out in rule 21A(2) to 21A(5) would show
that in all the four different cases the exercise of giving relief is
initiated by bringing to tax the whole of the extra amount in the
assessment for the assessment year relevant to the year of receipt. Basically,
the relief under section 89(1) is arithmetical. It involves finding out
of two rates of tax. The first is the rate of tax applicable to the
total income including the extra amount in the year of receipt. The
second is finding out the rate by adding the arrears to the total income
of the years to which they relate. For
this purpose the assessee should be asked for a true and authentic
statement of the total income of the earlier years to which the arrears
pertain There is no warrant for issuing a notice under section 148 or
calling for returns of income of the earlier years.
Circular : No. 331 [F. No. 174/102/79-IT(A-I)], dated 22-3-1982.
