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How to Claim Tax Relief on Salary Arrears With Form 10E

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How to Claim Tax Relief on Salary Arrears With Form 10E
January 16, 2020

Table of Content

 

Under the Income Tax Act, 1961, the income earned by any citizen of the country is taxable. Your tax returns have to be filed on time along with all the required documents if you wish to enjoy the reliefs and refunds promised under the Act.

As per the rules laid down by the Income Tax Department, any income, such as a salary, is taxed when it is received and not altogether at the end of the financial year. But, there are certain situations in which salary benefits are not provided in the same financial year, but the following year instead, forcing you to adjust your salary arrears in the subsequent years.

Taking note of this, the Income Tax department laid out a few provisions under the Income Tax Act, 1961 to provide some relief. Section 89(1) outlines laws that allow citizens to enjoy tax relief on salary arrears. Based on what is outlined here, your taxes are adjusted under the assumption that arrears were received in the year in which they were due.

Relief under Section 89(1) and Its Importance:

  1. If you have accrued your salary in a financial year but received it in a different year, then Section 89(1) allows you to adjust the salary amount.
  2. Filling of Form 10E is mandatory in order to claim relief in this case.
  3. The purpose behind providing this relief is to ensure that a taxpayer does not fall in the higher tax bracket simply because he or she received his salary arrears in a different year.
  4. In simple words, you need not pay tax on your income if it was earned in a different year.
  5. Arrears or advance salary amounts can add up to increase the tax amount for taxpayers and this could deter them from paying taxes. As a result, this could lead to a slump in the economy of the country.

How to Claim Relief

In order to claim relief under Section 89(1) concerning arrears of salary, an individual is required to fill up and submit Form 10E. If you've never done this before, don't worry. Here is look at our handy guide to fill form 10E online:

  1. Visit the official website for the filing of Form 10E - www.incometaxindiaefiling.gov.in.
  2. Log in to your account using your User ID and password along with your date of birth.
  3. After successfully logging in, click on the tab called 'e-file'.
  4. Now, select the option of Income Tax Forms.
  5. A drop-down list will appear on the screen. Select Form 10E from it.
  6. You need to enter the assessment year (the year in which the arrears on salary or pension were received).
  7. Once you fill up your name, PAN and other details, the instructions to fill Form 10E will be displayed on the screen.
  8. After going through the guidelines carefully, you can begin to fill the form which is divided into four Annexures.

    • Annexure-I: Fill this annexure if you're claiming relief with respect to pension or salary received in arrears or premature withdrawal from your Provident Fund.
    • Annexure-II: If you've received a gratuity amount for rendering your service as an employee for a time period between 5- 15 years, then fill up the details in this annexure.
    • Annexure-IIA: This annexure is to claim relief in the gratuity amount received for rendering services for more than 15 years.
    • Annexure-III: You can claim relief in respect to the compensation received on termination of employment by filling up Annexure III.
    • Annexure-IV: This has to be filled when relief is claimed with respect to commutation of pension.
  9. Once you've filled up the form, you can preview it before you finally submit it.
  10. If you are unable to complete the form at one go, you can save it. The 'Save Draft' button at the bottom of the screen will allow you to save the information you've entered so that you can complete the form later.
  11. To recall the saved draft, you will have to follow the same steps as provided above.
  12. Since Form 10E is submitted online, it is not necessary to attach its copy with your income tax return. But, for your own future reference, you can keep a hard copy with your financial papers.

It is mandatory to fill Form 10E online if you would like to claim relief as allowed under Section 89(1). While filing your income tax return, if you claim relief without filling the form, then the Income Tax Department will send you a circular regarding the same. The notice would state that you are not allowed to receive relief due to the missing Form 10E.

Understanding Eligibility for Relief under Section 89(1)

In a situation where you have received your pension or salary in arrears or advance, then Rule 21A guides you on how to calculate your tax relief. We can help you understand the calculation better with the help of the following steps:

  • Step 1: Calculate the tax on your total income for the current financial year (this will include the amount received through arrears or advance salary). Let's call this Amount 1.
  • Step 2: Now, compute the tax payable on your income without adding the arrears or advance. This is Amount 2.
  • Step 3: Find out the difference between the two amounts (Amount 1 – Amount 2).
  • Step 4: Calculate the tax on your income for the year when the arrears arose (do not include the arrears). We can call this Amount 3.
  • Step 5: For the same year, calculate the tax payable by adding the arrears or advance amount to your income. This is Amount 4.
  • Step 6: Subtract the two Amounts (Amount 4 – Amount 3).
  • Step 7: Only if the amount in Step 3 is more than that in Step 6, a taxpayer can claim relief under Section 89(1).

Since Form 10E under Section 89(1) provides tax relief for employees, it's important to fill up and submit the form before a claim for relief is made. Remember, by keeping your tax paperwork in order and filing on time, you can avoid paying an exorbitant fine for delayed taxes.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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