Filing of Income Tax Return: How to Claim Tax Relief on Advance and Other Salary Arrears

ITR Filing: The deadline for reporting ITRs for the financial year 2022-23 or the assessment year 2023-24 is July 31, 2023. However, it is important to file one’s income tax return as soon as feasible so that an earning individual might receive an ITR refund as soon as possible. However, while filing ITR, one must consider all possible income tax breaks, which include wage arrears such as advance salary, bonus, family pension arrears, termination compensation, and so on.

Income tax is charged on an individual’s entire income collected during the year, according to tax and investment experts. Section 89(1) of the Income Tax Act provides that if a person receives any past dues as a result of a payment delay, he or she may claim income tax relief on such payments.

If someone qualifies for income tax relief on received pay arrears, he or she can claim it in the current year’s ITR by filing Form 10E. It should be highlighted that submitting Form 10E is required in order to receive income tax reduction for late payments.

Income Tax Relief under Section 89

In terms of how salary arrears are taxed in India, it is said that “Section 89(1) of the Income Tax Act offers relief from receipt of past income in the current year for any change in taxation laws. The relief is granted by recalculating the tax outflow on such arrears of income according to the taxation rules applicable in both the years of receipt and the year to which the income corresponds. Any increase in tax outflow attributable to a change in taxation laws in the year of receipt is allowed as relief under section 89(1).”

An employee’s advance compensation is taxed in the year it is received. However, if the employee repays the advance amount in following years, the refunded amount can be claimed for tax relief in those years, subject to certain circumstances.

Income tax obligations are calculated based on a taxpayer’s total income earned during the financial year. If the assessee got a portion of their pay in arrears or in advance, or received Family Pension in arrears, they might seek tax relief under Section 89(1) of the Income Tax Act. Filing Form 10E is required in order to get the benefits provided in Section 89(1). This form may be easily submitted electronically using the income tax e-filing system.

Conditions

Section 89 reliefs can be claimed on any of the following received during a particular year:

a) Salary received in arrears or in advance
b) Premature withdrawal from Provident Fund
c) Gratuity
d) Commuted value of pension
e) Arrears of family pension
f) Compensation on termination of employment

What does Income Tax Relief under Section 89 entail for Salary Arrears?

Tax is determined on your total income earned during the year. If your total income includes any past dues paid in the current year, you may be concerned about paying a larger tax on such arrears (typically, tax rates have risen over time). Section 89(1) of the tax code allows you to avoid any additional tax burden caused by a delay in receiving income. If you have received any portion of your pay in arrears or in advance, or a family pension in arrears, you are entitled to some tax relief under Section 89(1) read in conjunction with Rule 21A.

How to Claim Income Tax Relief on Salary Arrears?

Simply put, you are saved from paying additional taxes as a result of the payment delay. If a person is qualified for tax relief on pay received in arrears or advance, he or she must complete Form 10E. When claiming tax relief under Section 89(1) of the Income Tax Act of 1961, an individual must complete Form 10E. Section 89(1) allows tax exemption for delayed wages received in the form of arrears or a family pension paid in arrears.