[Relief under Section 89 (1), Income under the Salaries, Income Tax Act, 1961]
Relief under Section 89(1)
If an
employee received any portion of salary in arrears or on advance or received profit in
lieu of salary, relief can be claimed 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.
Calculation
of relief u/s 89 when salary has been received in arrears or in advance
The relief
on the salary received in arrears or in advance (hereinafter to be referred to
as additional salary is computed in the manner laid down in rule 21A (2) as
under;
Ø Calculate
the tax payable on the total income, including the additional salary, of the
relevant previous year in which the same is received.
Ø Calculate
the tax payable on the total income, excluding the additional salary, of the
relevant previous year in which the additional salary is received.
Ø Find out
the difference between the tax at (1) and (2).
Ø Compute
the tax on the total income after including the additional salary in the
previous year to which such salary relates.
Ø Compute
the tax on the total income after additional salary in the previous year to
which such salary relates.
Ø Find out
the difference between tax at (4) and (5)
Ø The excess
of tax computed 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, the salary would be
spread over the previous year to which it pertains in the manner explained
above.