Home > Income Tax > Salary > Relief when salary or family pension has been received in arrears or in advance – Section 89(1)

Relief when salary or family pension has been received in arrears or in advance – Section 89(1)

Relief is allowed under section 89 to a salaried person when

  1. Salary or family pension is received in advance
  2. Salary or family pension is received in arrears

and income is assessed at a rate higher at which it would otherwise have been assessed.

For eg – A person’s salary is rs. 4,00,000 in year 2014-15 and rs. 5,00,000 in year 2015-16. Now his salary is increased by company from past date 1.4.2014 so he receives rs. 1,00,000 in 2015-16. This rs. 1 lakh is to be added in taxable income for year 2015-16. So his taxable income becomes rs. 6 lakh for 2015-16 and now he falls in 20% tax bracket. If the salary is received in 2014-15 itself then he remains in 10% tax bracket. Therefore relief is provided in this section for this increased taxation rate.

Calculation of Relief

Step 1 – Calculate the tax payable on the total income, including the additional salary of the relevant previous year in which the same is received.

Step 2 – Calculate the tax payable on the total income, excluding the additional salary of the relevant previous year in which the same is received.

Step 3 – Find out the difference between tax at Step 1 and Step 2

Step 4 – Calculate the tax on total income after excluding the additional salary in the previous year to which such salary relates.

Step 5 – Calculate the tax on total income after including the additional salary in the previous year to which such salary relates.

Step 6 – Find out the difference between tax at Step 4 and Step 5.

Step 7 – Excess of tax calculated at step 3 over tax calculated at step 6 is the amount of relief admissible under section 89(1). No relief if the tax calculated at step 3 is lower than the tax calculated at step 6.

 

 

About Rohit Pithisaria

Rohit Pithisaria founded TaxAdda in July 2012. He is Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He is actively writing from very beginning of his professional career and is author of various tax articles and blogs.
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