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Income Claime for Relief from Taxation U/S 89A

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Introduction

Income Claime for Relief from Taxation U/S 89A of the Income Tax Act, 1961, was introduced by the Finance Act, 2020, effective April 1, 2020. This section relieves taxpayers who have opted for the new tax regime introduced in the same Finance Act but have pending claims or returns from the previous tax regime.

Under the new tax regime, taxpayers can opt for lower tax rates but must forego certain deductions and exemptions obtainable under the previous tax regime. This led to a situation where some taxpayers who had pending claims or returns under the previous tax regime could not avail of the benefits of those claims or returns.

Section 89A was introduced to address this issue and relieve taxpayers with pending claims or returns from the previous tax regime. The section allows such taxpayers to claim the benefits of their pending claims or returns in the year they opt for the new tax regime.

What is Section 89?

What is Section 89?

For the Income Tax Act, income tax is levied on the assessee’s total income earned or received during the previous year. There are cases where, in the past, dues were paid off to the employee in the current year as salary debts. In this case, the income tax to paid by the worker, in this case, would higher in the current year. This can be because of the alteration in the slab rates appropriate to the asses see, due to which their slab rate would alteration to a higher tax slab.

Tax relief under section 89 allows us to tackle such a state. It provides relief in a case where the employee is receiving higher tax support at the time of receiving money for the earlier years.

What is Relief Under Section 89a?

Tax is calculated on your total income earned or conventional throughout the year. Suppose your total income comprises any past dues paid in the present year. In that case, you may be concerned about paying a higher tax such as arrears (usually, tax rates have increased over the years, plus adding past income increases your tax slab rate).

To save you from any additional tax load due to a delay in getting income, the tax laws let a relief under section 89(1). But, you do not pay more taxes if there was a postponement in payment to you and you were in lower tax support for the year you received the money.

An employee must meet certain circumstances to claim relief below this unit. To start with, Unit 89 reliefs can be demanded on any of the next received during a specific year:

  1. a) Salary received in debt or in advance
  2. b) Premature removal from Provident Fund
  3. c) Gratuity
  4. d) Commuted worth of pension
  5. e) Arrears of family pension
  6. f) Compensation at the end of employment.

Income Claime for Relief from Taxation U/S 89A

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Regarding how salary arrears are taxed in India, Archit Gupta, Founder & CEO at Clear, said, “Section 89(1) of the Income Tax Act proposes relief from receiving past income in the current year for any change in assessment laws. The relief is by recalculating the tax discharge on such arrears of income according to the assessment rules appropriate in both the years, year of receipt and the year to which the income pertains. Any upsurge in the tax outflow due to change in assessment rules in the year of receipt is allowable as Income Claime for Relief from Taxation U/S 89A.

On how advance salary is taxed, Sujit Bangar, Founder at Taxbuddy.com, said, “If an employee receives an advance salary, it is taxable in the year of receipt. However, if the employee repays the advance amount in subsequent years, they can claim relief for the repaid amount in those years, subject to certain conditions.”

Sujit Bangar added that income tax obligations are computed based on the taxpayer’s total income during the financial year. If the assessee receive a portion of their salary in debt or loan or has obtained a Family Pension in arrears, section 89(1) of the Income Tax Act enables them to claim tax relief. Filing Form 10E is a requirement to avail of benefits specified in section 89(1). You can conveniently submit this form electronically through the income tax e-filing portal.

Calculation of Tax Income Claime for Relief from Taxation U/S 89A for Salary Arrears

Let us understand the steps to calculate tax relief u/s. 89(1) with an example:

Arjun’s salary is INR 4,80,000 (40,000 per month) for FY 2019-20. His employer raised the salary to INR 7,80,000 (65,000 per month) in April 2020, effective from March 2020.

Therefore, the year of Receipt would be FY 2020-21, and the year of Accrual would be FY 2019-20. Hence, the arrears would amount to INR 25,000 for March 2020.

Tax Liability on total income, including arrears for the year of receipt

Calculate tax liability on total income, including salary arrears in the year of receipt

Year of Receipt = FY 2020-21

Total Income (including arrears) = INR 8,05,000

Tax Liability = INR 76,440.

Tax Liability on total income, Excluding arrears for the year of Receipt

Calculate tax liability on total income, excluding arrears in the year of receipt

Year of Receipt = FY 2020-21

Total Income (excluding arrears) = INR 7,80,000

Tax Liability = INR 71,240.

Difference between Step 1 & Step 2 of Income Tax

Difference between Step 1 & Step 2 of Income TaxCalculate the difference in tax liability between Step 1 and Step 2

Difference in tax liability = 76,440 – 71,240 = INR 5,200

Tax Liability on Total Income, Excluding Arrears for the Year of Accrual

Calculate tax liability on total income excluding additional salary, i.e., salary arrears of the financial year to which arrears are related

Year of Accrual = FY 2019-20

Total Income (excluding arrears) = INR 4,80,000

Tax Liability = NIL.

Tax Liability on Total Income, including arrears for the Year of Accrual

Calculate tax liability on total income, including additional salary, i.e., salary arrears of the financial year to which arrears are related

Year of Accrual = FY 2019-20

Total Income (including arrears) = INR 5,05,000

Tax Liability = INR 14,040.

Difference between Step 4 & Step 5

Calculate the change between step 4 and step 5

Difference in tax liability = 14,800 – 0 = INR 14,800.

Relief = Step 3 – Step 6

Tax Relief u/s 89(1) = Step 3 – Step 6. If the amount in Step 6 is more than in Step 3, no tax relief is allow

Tax Relief = NIL.

Income Tax Notice for Non-Filing of Form 10E

After the economic year 2014-15 (the valuation year 2015-16), ITD has made it obligatory to file Form 10E if you want to Income Claime for Relief from Taxation U/S 89A. Taxpayers who claim relief under unit 89(1) but do not file Form 10E have a conventional income tax notice from the tax department.

How to Income Claime for Relief from Taxation U/S 89A?

"How

  • First, calculate the tax unpaid in the present year, i.e., the year of salary receipt, by including the debts in your total income.
  • Now calculate the unpaid tax in the present year, i.e., the year of receiving, by excluding the arrears from your total income.
  • Calculate the change between the two statistics of Steps 1 & 2, and let’s call that change ‘X.’
  • Now, calculate your tax owe in the year, i.e., the year your arrear pay was due and for which the arrears have receive, by counting the debts in your total income.
  • Calculate your tax owing in the year, i.e., the year your arrear salary was due for which the arrears. I have remained received without the debts from your total income.
  • After that, compute the difference between the two statistics of Steps 4 & 5, and let’s call the difference ‘Y.’
  • Lastly, subtract Y (Step 6) after X (Step 3) to get the respite amount.

Conclusion

Income Claime for Relief from Taxation U/S 89A of the Income Tax Act delivers relief to taxpayers. Who have pending claims or returns under the previous tax regime and have opted for the new tax regime. Taxpayers can reduce their tax liability and avoid undue financial burden by claiming the benefits of their pending claims or returns. Eligible taxpayers should promptly claim relief under Section 89A to avoid delays in processing their claims.

Frequently Ask Question

Q:1 Who can claim release under Section 89A?

A: Income Claime for Relief from Taxation U/S 89A is available to taxpayers. Who have opted for the new tax regime presented by the Finance Act 2020. And also, I have an undecided claim or return under. If any of the provisions mentioned in the section.

Q:2 Can taxpayers claim relief under Section 89A for pending claims or returns under any other provision of the Income Tax Act?

A: No, relief under Section 89A is available only for pending claims or returns under the provisions mentioned in the section.

Q:3 What is the benefit of claiming relief under Section 89A?

A: The benefit of Income Claime for Relief from Taxation U/S 89A is that taxpayers can reduce their tax liability by claiming.  The benefits of their pending claims or returns under the previous tax regime. In the year they opt for the new tax regime.

Q:4 Is there a time limit for claiming relief under Section 89A?

A: There is no specific time limit for claiming relief under Section 89A. However, taxpayers should claim the relief as soon as they opt for the new tax regime. In to avoid any delay in processing their claim.

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