How to Claim Tax Relief on Salary Arrears With Form 10E
Table of Content
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:
- 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.
- Filling of Form 10E is mandatory in order to claim relief in this case.
- 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.
- In simple words, you need not pay tax on your income if it was earned in a different year.
- 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:
- Visit the official website for the filing of Form 10E - www.incometaxindiaefiling.gov.in.
- Log in to your account using your User ID and password along with your date of birth.
- After successfully logging in, click on the tab called 'e-file'.
- Now, select the option of Income Tax Forms.
- A drop-down list will appear on the screen. Select Form 10E from it.
- You need to enter the assessment year (the year in which the arrears on salary or pension were received).
- Once you fill up your name, PAN and other details, the instructions to fill Form 10E will be displayed on the screen.
- 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.
- Once you've filled up the form, you can preview it before you finally submit it.
- 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.
- To recall the saved draft, you will have to follow the same steps as provided above.
- 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.
Related Article:
- How to File Income Tax Return
- How to calculate income tax in India
- Guide to Income Tax Rebate
- How to Save Income Tax in India?
Term Plan Articles
Investment Articles
Savings Articles
Life Insurance Articles
Tax Articles
Retirement Articles
ULIP Articles
Subscribe to get the latest articles directly in your inbox
Health Plans Articles
Child Plans Articles
Popular Calculators
Here's all you should know about life insurance.
We help you to make informed insurance decisions for a lifetime.
HDFC Life
Reviewed by Life Insurance Experts
HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER
We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.
Popular Searches
- Term Insurance Calculator
- Investment Plans
- Investment Calculator
- Investment for Beginners
- Best Short Term Investments
- Best Long Term Investments
- 5 year Investment Plan
- savings plan
- ulip plan
- retirement plans
- health plans
- child insurance plans
- group insurance plans
- income tax calculator
- bmi calculator
- compound interest calculator
- income tax slab
- Income Tax Return
- what is term insurance
- Ulip vs SIP
- tax planning for salaried employees
- HRA Calculator
- Annuity From NPS
- Retirement Calculator
- Pension Calculator
- nps vs ppf
- short term investment plans
- safest investment options
- one time investment plans
- types of investments
- best investment options
- best investment options in India
- Term Insurance for Housewife
- Money Back Policy
- 1 Crore Term Insurance
- life Insurance policy
- NPS Calculator
- Savings Calculator
- life Insurance
- Gratuity Calculator
- Zero Cost Term Insurance
- critical illness insurance
- itc claim
- deductions under 80C
- section 80d
- Whole Life Insurance
- benefits of term insurance
- types of life insurance
- types of term insurance
- Benefits of Life Insurance
- Endowment Policy
- Term Insurance for NRI
- Term Insurance for Women
- Term Insurance for Self Employed
- Benefits of Health Insurance
- Health Insurance for Senior Citizens
- Health Insurance for NRI
- Best Term Insurance Plan for 1 Crore
- personal accident insurance
- Annuity Calculator