Relief u/s 89: Calculation of Relief Under Section 89(1)

If you received any portion of salary in arrears or on advance or received profit in lieu of salary, you can claim relief u/s 89 (1).

Salary in arrears or advance, received in lump-sum is liable to tax in the year of receipt. Some relief is however allowed from tax on such receipts. Claiming of relief is optional and should be claimed only when it is advantageous to the claimant. You can also claim relief u/s 89 (1), if you are not liable to tax and have not been taxed in the previous years.

The relief u/s 89(1) has to be granted in accordance with the provisions contained in Rule 21A of the Income Tax Rules. With effect from 1.6.1987, in the case of government servants and employees of public sector undertakings, relief under this section could be given by the employers at the time of deducting tax at source. This is provided for under section 192(2A) of the Income Tax Act. This has been extended to all companies, co-operative societies, universities or institutions etc. w.e.f. 1.6.1989.

Procedure for granting relief u/s 89(1) by the employer:

The employer should obtain applications from the employee in forms No. 10E

Relief should be worked out in the manner provided in Rule 21A.

Calculation of relief u/s 89 when salary has been received in arrears or in advance

As per rule 21A (2)

The relief on salary received in arrears or in advance (hereinafter to be refereed as additional salary is computed in the manner laid down in rule 21A (2) as under;

1. Calculate the tax payable on the total income, including the additional salary, of the relevant previous year in which the same is received.
2. Calculate the tax payable on the total income, excluding the additional salary, of the relevant previous year in which the additional salary is received.
3. Find out the difference between the tax at (1 ) and (2).
4. Compute the tax on the total income after including the additional salary in the previous year to which such salary relates.
5. Compute the tax on the total income after additional salary in the previous year to which such salary relates.
6. Find out the difference between tax at (4) and (5)
7. The excess of tax compute at (3) over tax computed at (6) is the amount of relief admissible under section 89. No relief is, however, admissible if tax computed at (3) is less then tax computed at (6). In such a case, the assessee- employee need not apply for relief.

If the additional salary relates to more than one previous year, salary would be spread over the previous year to which it pertains in the manner explained above.

Relief u/s 89(1) Calculator

Download Relief u/s 89 (1) Calculator (Excel Based) updated on 10.12.2009 prepared by R. Vekatesh Reddy.

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