This year you have received salary arrears or commutation of pension, or gratuity pertaining to previous years, and now you may fear it’s going to move you up a tax slab with the additional tax burden. This is because tax rates may be higher in the year arrears are received as compared to the year to which they belong. To protect you from any additional tax burden, due to delay in receiving income, the income tax laws allow you relief under Section 89(1). This relief can be directly claimed in your income tax return if you have received any portion of your salary in arrears. 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 order to claim relief under Section 89(1) concerning arrears of salary, an individual is mandatorily required to submit Form 10E to Income tax department. As per Section 89(1) read with Rule 21A under Income Tax Act 1961, tax relief is provided by recalculating tax for both the years; the year in which arrears are received and the year to which the arrears pertain. Your taxes are adjusted assuming arrears were received in the year in which they were due.
Calculating relief u/s 89(1): The relief is calculated based on both inclusive as well as exclusive of arrears in the year of arrears receive as under;
- Calculate tax payable on the total income of this year, including additional salary (arrears) received.
- Then compute the tax for every year to which the arrears pertain (including as well as excluding arrears).
Now find out the difference of tax payable between (1) and (2). If tax payable as per (1) is more than (2), relief is available to the taxpayer by filing Form 10-E.
However, it is mandatory to file form 10 E to claim relief u/s 89(1) before filing your annual IT return. Suppose, you have received arrears in the FY 2020-21, you have to choose assessment year (AY) 2021-21 to file F-10 E.
Here’s how you can file Form 10 E: –
Log on to www.incometaxindiaefiling.gov.in.
Log in to your account using your User ID and password along with your date of birth. Once you are successful in logging in to IT website, select the option and click on the tab called ‘e-file’.
Now, move and select the option of Income Tax Forms. The drop-down list of forms will be appearing on the screen. Select Form 10E from it. You need to fill-in your name, PAN and other details and also need to enter the assessment year (Suppose, you have received arrears in the FY 2020-21, you have to choose assessment year (AY) 2021-21). Read the guidelines carefully, and begin to fill-in 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 or if you want to submit it later on you may press “Save Draft’ button and save the details filled in. 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.
ONCE YOU HAVE SUBMITTED F-10E ONLINE, NO NEED TO ATTACH ITS COPY WITH YOUR INCOME TAX RETURN. However, for future reference, it is advisable to keep a hard copy of 10E with your financial papers.