How To Get Tax Relief Under Section 89(1) With Form 10E?

Filing Income Tax returns is an annual ritual a taxpayer contends with every financial year. The exercise begins right after 31 May, when the employer delivers the signed Form 16. However, all your financial plans can go haywire if an arrear or an advanced salary arises during the financial year.

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You can end up with a significant income tax liability consequent to a quantum jump in tax slab for the sudden surge in your gross income. Section 89 lends you a hand in such situations to substantially reduce your income tax burden. 

Understanding Section 89 (1):

Your gross income during a financial year comprises all income receipts including arrears. Therefore, your tax liability goes up substantially. However, you can seek relief under Section 89 of the Income Tax Act for the delayed income received during the financial year. So, you can avoid the additional tax burden by apportioning the arrears across the due years under the following receipts during the year.

  • Salary received in advance or arrears. 

  • Premature provident fund withdrawal

  • Gratuity

  • Commuted value of pension

  • Family pension arrears

  • The compensation received for termination of employment

Relief For A Salary Under Section 89 (1):

The income tax calculation for a particular financial year includes the total income. If as a taxpayer, you received any of the aforementioned during the year, it increases your gross income to calculate the income tax liability. The past-due payment received during the current year inflates the gross income to impact the applicable higher income tax slab rates. However, you can seek tax relief under Section 89 (1), subject to certain conditions. So, let us dig deeper and find out. 

Claiming Relief Under Section 89 (1):

According to Section 89 (1), you can apportion the past due income received during the current year. You can recalculate the taxes in the previous years to which the arrears pertain. Consequently, the taxes adjust according to the year they were originally due. First, you must submit Form 10E while filing your ITR online at the IT Department’s e-Portal, navigating through the process as prompted by the system. That brings us to explore the features of Form 10E and understand its impact. 

Form 10E Features:

Form 10E primarily details the taxpayer employee’s total income during the financial year, including the arrears. The Form 10E features crucial to Section 89 (1) are:

  • Form 10E submission is compulsory at the IT Department’s e-filing portal. You can access the form by logging in to the official portal using your credentials. However, first register in the portal, if you are a new user. 

  • Form 10E is available in the portal IT forms section. To avoid future complications, you must be careful while filling in the form, especially the annexure. 

  • You must select the proper annexure depending on the relief you are seeking. For example, Annexure-I is for arrears, Annexure-II is gratuity, while Annexure-III pertains to compensation received for job termination. 

Tax Relief Calculation Under Section 89 (1) On Salary Arrears:

Calculating relief under Section 89 (1) is crucial for gaining substantially through a reduced tax burden. So, here are the steps to go about it.

  • Calculate the tax liability with the gross income, including arrears, gratuity, or compensation received during the financial year.

  • Calculate the tax liability excluding the additional pay, arrears, or any compensation received during the financial year. 

  • Subtract the tax liability calculated in Step 2 from the tax liability arrived in Step 1.

  • Calculate the tax liability on the gross income, excluding the additional pay or arrears for the year they relate.

  • Calculate the tax liability on the gross income, including the additional pay or arrears for the year they relate.

  • Next, calculate the difference between Step 4 and Step 5. 

  • The excess amount arrived in Step 3 over Step 6 is the final tax relief allowed under Section 89 (1). On the contrary, if the amount of Step 6 exceeds the amount arrived in Step 3, you are not eligible for any relief. 

Points to Remember for Claiming Relief under Section 89 (1):

While claiming relief under Section 89 (1), the cardinal point is that filing Form 10E. In addition, you must remember the following.

  • You can fill out Form 10E online at the IT department's e-filing portal. Your request for relief under Section 89 (1) depends on filling out the form. Else, you are liable to receive a notice for non-compliance apart from losing the tax relief.

  • Salary becomes taxable only when it is due or when received. You can claim relief under Section 89 (1) for salary arrears acting on the same principle, as arrears belong to backdate. Therefore, it escaped taxation when due.

  • Filing Form 10E before the ITR for the financial year is mandatory. In addition, choosing assessment years for the arrears is tricky. First, you must select the appropriate assessment year to make your ITR flawless. For example, for arrears relating to the 2020-21 financial year, the assessment year is 2021-22. 

  •  It is unnecessary to attach a copy of Form 10E while filing the ITR for the relevant financial year. However, you must keep the documents handy for scrutiny on demand. 

  • In addition, your employer may seek confirmation about filing Form 10E. But it is not necessary to submit the form to your employer. 

Filing Form 10E:

Now get to the most critical aspect of claiming relief under Section 89 (1) – the procedure to file Form 10E. The following steps are essential for the successful submission of Form 10E per the government’s stipulations. 

  • Visit the IT Department’s official e-filing website using the www.incometaxindiaefiling.gov.in link. 

  • Log in by clicking the “Login” button at the top right-hand corner using your credentials. Your PAN card number is the User ID by default. 

  • After logging in, click on the e-filing tab ? select “Prepare and Submit the Online Form” from the dropdown menu.

  •  Click on the “Form Name” in the dropdown list.

  •  Look for Form 10E, click on it and select the assessment year before clicking on the “Continue” button.

  • Next, select the applicable items from the annexure list.

  • Check the populated personal information and click on the “Save” button for the chosen annexure.

  • Feed the relevant information like the arrear income, etc.

  • Review and verify the entered details and click on “Save” to proceed. You have successfully filled in Form 10E. 

Consequences of Not Filing Form 10E:

You are aware that you must submit Form 10E before filing the appropriate ITR for claiming relief under Section 89 (1). While the prospective income tax relief is substantial, the IT Department may disallow the benefit for non-compliance. Therefore, the government’s IT rules stipulate that filing Form 10E is compulsory for claiming relief under the relevant section under discussion. 

Brace for the consequences of non-compliance when your ITR submission sails through minus the tax relief under Section 89 (1), negating your effort. In addition, you are liable to receive an IT department notice. So, you do not have any other option but to file Form 10E online to reduce your tax burden allowed under Section 89 (1). 

In Conclusion:

Section 89 (1) provides massive relief to the taxpayers who suffer the consequences of receiving salary arrears to account for in the current financial year. The economic impact is substantial until you claim relief under Section 89 (1) of the Income Tax Act, 1961. Though the procedure appears daunting, the tax relief of a reduced tax liability outweighs the hassle of filing the additional Form 10E under compulsion.

FAQ's

  • Is it compulsory to file Form 10E if you do not claim relief under Section 89 (1) of the IT Act, 1961?

    A: Filing Form 10E is compulsory for taxpayers claiming relief under Section 89 (1) for receiving additional income or arrears in the current financial. However, there is no compulsion to claim relief under Section 89 (1), even after receiving arrears or additional payment, provided you are ready to absorb the higher income tax burden. 
  • How do you save income tax on salary in the usual course?

    A: Salaried taxpayers can explore the IT Act’s various sections that provide attractive tax exemptions. For example, section 80C is the most popular, where you can claim tax deductions up to Rs.1.5 Lakhs through investments in various tax-saving vehicles. In addition, you can claim a tax deduction under Section 80D for paying the medical insurance premiums for yourself, your family, and your parents. Conclusion: many similar sections allow substantial tax deductions helping you reduce your tax liability further. 
  • When is the last date for filing Form 10E while claiming relief under Section 89 (1)?

    A: The last date for filing Form 10E is the same for filing the ITR during the assessment year stipulated by the government of India. For example, the extended date in the previous year was 31 December in light of the ongoing pandemic.  
  • Can you claim relief under Section 89 (1) if the salary arrears do not appear in the current year’s Form 16?

    A: Yes, you can claim relief under Section 89 (1) for arrears received but not appearing in the current year’s Form 16. However, do not forget to file Form 10E for claiming the relief. 
  • Can you claim relief under section 89 (1) for HRA arrears received in the current financial year?

    A: Yes, HRA is a component of your salary. Hence, you can safely claim relief under Section 89 (1) for HRA arrears received in the current financial year.
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