You can save tax on salary arrears, exemption is available in this section

You can save tax on salary arrears with the help of section 89(1)

Suppose you have received any trapped money, have received a large amount in family pension or a large amount has been deposited in your account in advance. In such a situation, it is important to understand the tax matters related to arrears. A provision of section 89(1) has been kept for this tax deduction.

Appraisal time is running out. Your salary in the next month or one or two months (Salary Hike) will increase. The arrears of the increase in salary will be added. You will have more money in your account, but tax ,Income Tax) will increase. It happens that first the salary is less then less money comes in the account. But later the salary increases and arrears money also gets added. This increases your income and accordingly your tax liability also increases. But nothing to worry. You can easily save this tax. Just have to take care of the section of Income Tax.

Tax on arrears can be saved with the help of section 89(1) of the Income Tax. For this, you need to know how to use this section to get the benefit of tax deduction. Whatever you earn in a year, whatever money you add to your account, tax is calculated on it. After the arrears money comes, your earnings increase and accordingly the tax net increases. If the salary is more then the arrears will also be more and your tax liability will be more. Therefore, while filing tax, keep these things in mind and do not forget to deposit less tax.

Exemption under section 89(1)

Tax can be saved with the help of section 89(1) of the tax on arrears money. It is not necessary that the arrears should be of your salary only. Suppose you have received any trapped money, have received a large amount in family pension or a large amount has been deposited in your account in advance. In such a situation, it is important to understand the tax matters related to arrears. A provision of section 89(1) has been kept for this tax deduction. With the help of this section, you can get tax relief.

how to save tax

First you have to add all your earnings. Even tax will have to be added on the arrears money. The income of that year has to be added in the year in which the tax is to be paid. For this, see Form 16, part B of which shows arrears. Now add your total earnings in which arrears will also come. Calculate tax on this. After that calculate the tax by deducting arrears from the total earnings. If tax is due then you should take help of section 89(1) to save it.

To avail the benefit of tax rebate under section 89(1), you have to file Form 10E. You will find this form on the website of the tax department. This form has to be filled before filing the tax return. Arrears are also mentioned in this form. You will be able to save tax on arrears only when you fill Form 10E. This work is completely digital and for this there is no need to visit the office of the tax department.

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How to fill Form 10E

  1. To file 10E visit www.incometaxindiaefiling.gov.in
  2. Login with your PAN Card details and Password
  3. After successfully logging in, click on ‘e-File’ option on the status bar at the top
  4. Now select the Income Tax Form option from the drop down menu
  5. Select Form 10E- Form for Relief U/S 89 from the drop-down box named Form
  6. Now, select Assessment Year and Submission Mode to continue further
  7. A new page will appear – The first tab of this page will contain important instructions and tips
  8. In the second tab, you will get the details like name, address, PAN number etc. already filled. Select Residential Stater from the drop-down menu
  9. Now, you have to fill the annexure. There will be four – one for salary arrears or premature withdrawal of provident fund, and one each for commutation of pension, compensation on termination of employment, relief in payment of gratuity for 5-15 years of service.
  10. Verify the form then select preview and submit
  11. If you find any error before submitting by clicking ‘Edit’, you can also fix the same in the form
  12. You should download a PDF copy for reference
  13. If you are unable to fill the form in one go, you can select ‘Save Draft’ which will allow you to complete it later

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