Income Tax Relief under Section 89 of Income Tax Act – Updated GConnect Calculator

Income Tax Relief under Section 89 of Income Tax Act – Updated GConnect Calculator to determine IT Relief for Arrears of Income from Salary received during the year 2021-22 (Assessment Year 2022-23)

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GConnect Income Tax Calculator 2021-22  (Assessment Year 2022-23) for Central Government Employees and Pensioners – Instant Version

Five Simple Steps to use GConnect Income Tax Relief Calculator:

1. Divide the Arrears amount you have received in the year 2021-22 in to parts and enter those in GConnect IT Relief Calculator in the relevant years in which those were actually due.

This division of Arrears in to parts can be easily made by calculating the year wise total of the arrears amount using Pay due & drawn statement supplied to you while paying Pay arrears. For example, if an employee has received an arrears amount in the year 2021-22, being the unpaid pay for the period from March 2008 to October 2021, the same has to be distributed as pay arrears relevant to the years 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19, 2019-20, and 2021-22 and the arrears relevant to each year will have to be entered in the fields given.   As far as this example is concerned the fields for income and arrears in the years 2005-06, 2006-07, and 2007-08 in this case have to be entered with zeros as no arrears are due in these years.

2. Keep the copies of your IT Returns / Form 16 for the years from which the arrears is due. If the copies of IT returns / online IT filed details are not available, salary slips issued by the Employer / Department can be used for claiming the Income Tax Relief under Section 89.  If your arrears is due from the year January 2014 to October 2021, copies of IT Returns for the financial year 2014-15,2015-16, 2016-17, 2017-18, 2018-19, 2019-20, and 2020-21 will be required for making entries in the GConnect IT relief Calculator. Enter the net taxable income provided in those ITR return / form-16 in the relevant fields of GConnect IT relief Calculator.

The fields provided for other financial years in this case , i.e from 2005-06, to 2013-14 can be filled up with zeros as those years are not required for calculating Income Tax relief under section 89 in the instant case.

Net Taxable income refers to Income based on which Income Tax for the year is calculated i.e Net income after all regular deductions and exemptions etc. For the sake of many of readers who are raising the doubt that whether any other arrears received in the previous years has to be shown for calculating IT relief for this year, we clarify that since you are taking net taxable income as per ITR it will be inclusive any other arrears amount received in the previous years.

3. Also, enter the income tax relief amount under section 89 deducted/availed by you during the previous years if any enter the same in the relevant fields provided for this purpose in GConnect IT Relief Calculator.

As a result, this income tax relief Tool will calculate your exact income tax liability during previous years after deducting income tax relief availed by you.

4. While entering the taxable income for the current year 2021-22, exclude the total arrears received by you pertaining to previous years, for which Income relief under Section 89(1) is intended to be claimed this year.  However, do not exclude the pay arrears pertaining to current year.  In other words, if you have received arrears amount in 2021-22 which is pertaining to the year from 2015-16 to 2021-22, exclude the arrears pertaining to the financial years 2015-16 to 2020-21 but do not exclude arrears pertaining to the financial year 2021-22.

This is because the tool automatically take into account the break-up of arrears entered you in the relevant field provided in the tool.

5. Now all mandatory entry work is over. Fill up your Name, PAN, Address etc as these are relevant details in Form 10 E.  Once you fill up the taxable income of the current year and press enter button, the tool would calculate the Income Tax Relief available to you if any in the field named as “Relief under Section 89 [B-A]“. Then Click “Generate Statement of Relief to be produced to IT – Form 10 E”. Now the prescribed Form-10E Statement will be generated for the Income Tax Relief Claimed.   This Form 10E statement can be used to fill up online Form 10E in the income tax Return filing portal (https://incometax.gov.in), which has be submitted mandatorily by all the Employees who intends to claim Income Tax Relief under Section 89 in respect of Salary Arrears.

How to fill up Form 10E online in the Income Tax Return filing Portal (https://incometax.gov.in)?

Checkout this tutorial which provides, step by step procedure to file Income Tax Form 10E Online

How Income tax relief under Section 89 is calculated?

This tool calculates income tax by distributing the arrears to the relevant years.

As per Section 89 and other related provisions, Income Tax Relief will be available in the following situation.

1. Arrears received has to be split in to values related to previous years.

2. As a first step, Income Tax of previous years has to be calculated without including distributed arrears. Then Income tax has to be calculated for all these previous years by including the distributed arrears.

3. Difference in income tax on income with arrears and without arrears for each year has to be calculated.

4. All these differential values in income tax has to be added to find out total difference in income tax if Arrears is distributed to previous years . Let it be called as “A”

5. Then Income Tax for the current years without including the total arrears has to be calculated. Also Income tax for the current year after including total arrears has to be calculated. Now difference between these two Income Tax amount is to be taken as “B”

6. If B-A is a negative value or zero, then no income tax relief is available

7. If B-A is positive value then this amount can be deducted from the Income Tax payable for the current which is known as Income Tax Relief under Section 89 (1) of Income Tax Act.

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The following are relevant Sections and Rules for claiming Income Tax Relief for the Arrears of Salary Income

Checkout this link to read Section 89 in Income Tax official website

Click here to read the provisions of Rule 21A

Section 89 of IT Act – Relief when salary, etc., is paid in arrears or in advance.

89. Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to clause (iia) of section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as may be prescribed⁶³:

Provided that no such relief shall be granted in respect of any amount received or receivable by an assessee on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i) of clause (10C) of section 10, a scheme of voluntary separation, if an exemption in respect of any amount received or receivable on such voluntary retirement or termination of his service or voluntary separation has been claimed by the assessee under clause (10C) of section 10 in respect of such, or any other, assessment year.

Rule 21A of IT Rules – Relief when salary is paid in arrears or in advance, etc.

21A.   (1) Where, by reason of any portion of an assessee’s salary being paid in arrears or in advance or, by reason of any portion of family pension received by an assessee being paid in arrears or, by reason of his having received in any one financial year salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, his income is assessed at a rate higher than that at which it would otherwise have been assessed, the relief to be granted under sub-section (1) of section 89 shall be—

          (a)  where any portion of the assessee’s salary is received in arrears or in advance or, any portion of family pension is received by an assessee in arrears, in accordance with the provisions of sub-rule (2);

(b)  where the payment is in the nature of gratuity in respect of past services of the assessee extending over a period of not less than five years, in accordance with the provisions of sub-rule (3);

          (c)  where the payment is in the nature of compensation received by the assessee from his employer or former employer at or in connection with the termination of his employment after continuous service for not less than three years and where the unexpired portion of his term of employment is also not less than three years, in accordance with the provisions of sub-rule (4);

          (d)  where the payment is in commutation of pension, in accordance with the provisions of sub-rule (5); and

          (e)  where the payment is not in the nature of salary paid in arrears or in advance or gratuity in respect of past services or compensation received at or in connection with the termination of employment or in commutation of pension, in accordance with the provisions of sub-rule (6).

(2)(a) In a case referred to in clause (a) of sub-rule (1), the tax payable by the assessee on his total income of the previous year in which the salary is received in arrears or in advance or, in which the family pension is received in arrears (such salary or family pension being hereafter in this sub-rule referred to respectively as the additional salary or additional family pension, as the case may be, and such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the additional salary or additional family pension, calculated in the manner specified in clause (b), exceeds the tax or the aggregate tax on the additional salary or additional family pension, calculated in the manner specified in clause (c) or clause (d), as the case may be.

(b) Tax shall be calculated on the total income of the relevant previous year as reduced by the additional salary or additional family pension, as the case may be, as if the total income so reduced were the total income of the assessee, and the amount by which the tax so calculated falls short of the tax on the total income before such reduction shall, for the purposes of clause (a), be taken to be the tax on the additional salary or additional family pension, under this clause.

(c) Where the additional salary or additional family pension, as the case may be, relates to only one previous year, tax shall be calculated on the total income of the said previous year as increased by the additional salary or additional family pension, as if the total income so increased were the total income of the assessee, and the amount by which the tax so calculated exceeds the tax payable by the assessee in respect of the total income of the said previous year shall, for the purposes of clause (a), be taken to be the tax on the additional salary or additional family pension, under this clause.

(d) Where the additional salary or additional family pension, as the case may be, relates to more than one previous year,—

           (i)  the previous years to which the additional salary or additional family pension relates and the amount relating to each such previous year shall first be ascertained;

          (ii)  tax shall, then, be calculated on the total income of each such previous year as increased by the amount relating to such previous year ascertained under sub-clause (i); as if the total income so increased were the total income of that previous year, and the amount by which the aggregate amount of tax in respect of the aforesaid previous years as calculated under sub-clause (ii) exceeds the aggregate amount of tax payable by the assessee in respect of the total income of the said previous years shall, for the purposes of clause (a), be taken to be the aggregate tax on the additional salary or additional family pension, under this clause.]

(3)  (a) In a case referred to in clause (b) of sub-rule (1), the tax payable by the  assessee on his total income of the previous year in which the payment by way of gratuity is received (such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the amount of the gratuity included in the total income of the relevant previous year, calculated at the average rate of tax applicable to such total income, exceeds the tax on the amount of such gratuity, calculated at the rate of tax determined under clause (b) or, as the case may be, clause (c).

(b) Where the payment by way of gratuity is made in respect of past services of the assessee extending over a period of not less than five years but less than fifteen years,—

           (i)  the total income of the assessee in respect of each of the two previous years immediately preceding the relevant previous year shall be  increased by an amount equal to one-half of the amount of the gratuity included in the total income of the relevant previous year, and the average rate of tax for each of the said two previous years shall be calculated as if the total income so increased were the total income of that previous year; and

          (ii)  the average of the average rates of tax for the two previous years immediately preceding the relevant previous year, calculated in accordance with sub-clause (i), shall, for the purposes of clause (a), be the rate of tax determined under this clause.

(c) Where the payment by way of gratuity is made in respect of past services of the assessee extending over a period of not less than fifteen years,—

           (i)  the total income of the assessee in respect of each of the three previous years immediately preceding the relevant previous year shall be increased by an amount equal to one-third  of the amount of the gratuity included in the total income of the relevant previous year, and the average rate of tax for each of the said three previous years shall be calculated as if the total income so increased were the total income of that previous year; and

          (ii)  the average of the average rates of tax for the three previous years immediately preceding the relevant previous year, calculated in accordance with sub-clause (i), shall, for the purposes of clause (a), be the rate of tax determined under this clause.

(4)  (a)  In a case referred to in clause (c) of sub-rule (1), the tax payable by the assessee on his total income of the previous year in which the payment by way of compensation is received (such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the amount of the compensation included in the total income of the relevant previous year, calculated at the average rate of tax applicable to such total income, exceeds the tax on the amount of such compensation, calculated at the rate of tax determined under clause (b).

(b) The total income of the assessee in respect of each of the three previous years immediately preceding the relevant previous year shall be increased by an amount equal to one-third of the amount of the compensation included in the total income of the relevant previous year, and the average rate of tax for each of the said three previous years shall be calculated as if the total income so increased were the total income of that previous year; and the average of the average rates of tax so calculated for the three previous years shall, for the purposes of clause (a), be the rate of tax determined under this clause.

(5)  (a)  In a case referred to in clause (d) of sub-rule (1), the tax payable by the assessee on his total income of the previous year in which the payment in commutation of pension is received (such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the payment in commutation of pension included in the total income of the relevant previous year, calculated at the average rate of tax applicable to such total income, exceeds the tax on the amount of such payment, calculated at the rate of tax determined under clause (b).

(b) The total income of the assessee in respect of each of the three previous years immediately preceding the relevant previous year shall be increased by an amount equal to one-third of the amount of payment in commutation of pension included in the total income of the relevant previous year, and the average rate of tax for each of the said three previous years shall be calculated as if the total income so increased were the total income of that previous year; and the average of the average rates of tax so calculated for the three previous years shall, for the purposes of clause (a), be the rate of tax determined under this clause.

(6) In a case referred to in clause (e) of sub-rule (1), the Board may, having regard to the circumstances of the case, allow such relief as it deems fit.

Provision for Form 10 E Furnishing of particulars for claiming relief under section 89(1).

21AA.  Where the assessee, being a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body], is entitled to relief under sub-section (1) of section 89, he may furnish to the person responsible for making the payment referred to in sub-section (1) of section 192, the particulars specified in Form No. 10E.

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GConnect Income Tax Calculator 2021-22  (Assessment Year 2022-23) for Central Government Employees and Pensioners – Instant Version