Calculate Income tax relief for Arrears of pay received in the year 2011-12

Update: 26-11-2012- New GConnect Income Tax Relief  Calculator for the Arrears received in the year 2012-13 – Click here for more details

We launched an online calculator for estimating the Income Tax rebate under Section 89(1) for the arrears of pay and allowance received by an employee in the year 2009 as we thought that it will be very useful for GConnect readers on account of implementation of sixth pay commission which involved payment of arrears to many of Government employees.

This year we thought of discontinuing this tool as payment of arrears on account of 6cpc implementation would have been over by this time.

However, many GConnect readers demanded that receipt of arrears of pay and allowances pertaining to previous years is regular phenomenon in Government service on account of MACP, promotion etc as pay fixation may be given with retrospective effect in such situations.

So, we have updated this online tool for calculating Income tax relief under Section 89(1) of IT Act for the arrears of pay and allowances received by a salaried employee during the year 2011-12.

Click here to go to GConnect Income tax relief under Section 89(1) tool for arrears received in 2011-12

Following points may be kept in mind while making entry in this Income Tax relief tool:

Tips to use the tool:

• While making entry for the financial year 2008-09, 2009-10 and 2010-11, include the total arrears received by you during these previous years in the taxable income of relevant years. In other words, the net taxable income provided in your ITR return/form-16 in the relevant year is to be entered.
• Also, enter the income tax relief under section 89 (1) deducted/availed by you during these two years (2008-09, 2009-10 and 2010-11) for the arrears received by you in these three years, in the relevant fields provided for this purpose. As a result, this income tax relief Tool for the year 2011-12 will calculate your exact income tax liablity during these years after deducting income tax relief availed by you.
• While entering the taxable income for the current year 2011-12, exclude the total arrears received by you this year (2011-12), for which relief under Section 89(1) is intended to be claimed this year. This is because the tool automatically add the break-up of arrears entered you in the relevant field provided in the tool against the year 2005-06, 2006-07, 2007-08, 2008-09,2009-10, 2010-11, with the income entered by you for the year 2011-12.
• If income tax relief or the arrears received by you for a particular year is Nil, ensure that 0 (numerical zero) is entered in the relevant fields.

Who can use this tool?

This tool will be useful mainly for employees who have change in their pay and allowances with retrospective effect in the situations such as MACP (Modified Assured Career Progression), promotion etc. Such employees have a chance of getting income tax relief for the Pay and allowance arrears, which are actually relevant to the previous years.

How Income tax relief under Section 89(1) is calculated?

• This tool calculates income tax to be paid for the relevant previous by distributing the arrears to the relevant years.
• Then summation of this income tax is compared with the income tax that is to be payable for the income in 2011-12 after including the entire arrears received during this year.
• If the total income tax payable in the previous years after including the distributed arrears is lesser than the income tax payable for the income of current year (2011-12) after including entire arrears during this year. The difference between both of these figures is allowed as Income tax relief under Section 89(1) of Income Tax.
• If this distribution did not result in the lesser payment of income tax for the previous years, no income tax relief is available.

To check the relevant income tax provisions for the procedure to calculate relief under Section 89 (1) use the following links.

Income tax Department link for Section 89(1)

Rule 21 A of Income Tax Rules

Income tax provisions for Form 10E

GConnect online tool to calculate income tax for the year 2010-11 (Assessment year 2011-12)

Click here to go to GConnect Income tax relief under Section 89(1) tool for arrears received in 2010-11

Provide your suggestions for the improvement of this online tool as comments to this article.

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