How to claim tax relief on salary arrears received by you?

This year you have received salary arrears or commutation of pension, or gratuity about 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 into the higher tax bracket simply because he or she received his salary arrears in a different year.

 To claim relief under Section 89(1) concerning arrears of salary, an individual is mandatorily required to submit Form 10E to the Income tax department. As per Section 89(1) read with Rule 21A under the 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 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 received as under;

1. Calculate tax payable on the total income of this year, including additional salary (arrears) received.
2. 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 the tax payable as per (1) is more than (2), relief is available to the taxpayer by filing Form 10-E.

For example:

For example, the Income tax paid by you for the FY 2022-23 is 48000/- and you have to pay income tax of Rs.52000/- if you include the arrears of FY 2022-23 to your gross income of FY 2022-23.
The difference in Tax amount payable for that financial year is (52000-48000) =4000.

Suppose, the tax payment for the year 2023-24 along with the entire arrears (including arrears of FY 2022-23) is Rs.65000 and the Tax payment for 2023-24 without including the arrears of 2022-23 is Rs.58000. The difference of Tax payable for that financial year because of arrears of FY 2022-23 is (65000-58000) = 7000

In the above case, you can claim income tax relief of Rs.3000 (i.e. 7000-4000)

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 2022-23, you have to choose assessment year (AY) 2023-24 to file F-10 E.

Here’s how you can file Form 10 E: –

Submitting Form 10E is quite easy as the form is available on the Income Tax Department’s e-portal. You have to visit the portal and log in to the account. If visiting the portal for the first time, you should register and create a valid ID and password. Form 10E is available in the income tax forms section.

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 the 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 appear 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 2022-23, you have to choose assessment year (AY) 2023-24). 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 concerning 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 some time 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 concerning the compensation received on termination of employment by filling up Annexure III.

Annexure-IV: This has to be filled when relief is claimed concerning the 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 the “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 THE 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.

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