04 January 2011
Under this section relief is given when salary is paid in arrears or advance. Tax is computed on accrual and cash basis and if accrual is leeser than cash basis, that much is tax deduction.
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 Explanationto 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 prescribed.
So When Salary in Arrears is received and it gets taxed at higher rate , a relief computation can be made as Follows
Suppose A)2003 Income Without Arrear salary 5,00,000 B)2003 Income With Arrear Salary 8,50,000, C)2004 Income Without Arrear Salary 8,00,000 D)2004 Income With Arrear Salary 11,50,000
Now,We will Try To Locate tax Difference B/W A&B First then C&D and in both cases we will identify tax Component only on Arreared Salary. Then Relief u/s 89 Will be Difference in these two tax Components.
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