relief under sec 89

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Pradita Nambiar (Querist)
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04 July 2011 I have received some amount as arrears for FY 09-10 in FY 10-11. I have also received arrears pertaining to the earlier years in FY 09-10. Now while calculating relief under sec 89 for AY11-12 should I deduct arrears received for the earlier years other than 09-10 to arrive at the taxable income for AY10-11.

CS Bijoy

CS Bijoy (Expert)
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04 July 2011 Section 89. If salary is received in arrears or in advance, or receives profit in lieu of salary, it can be spread over the years to which it relates and be taxed accordingly as per section 89(1). The relief is also available on family pension received in arrears.

Computation of relief in case of relief when salary has been received in arrears or in advance under section 89(1) (in terms of section 89 read with rule 21A):

1. Calculate the tax payable on the total income, including the additional salary of the relevant previous year in which the same is received.
2. Calculate the tax payable on the total income, excluding the additional salary of the relevant previous year in which the same is received.
3. Find out the difference in tax at (1) and (2) above.
4. Compute the tax on the total income after excluding the additional salary in the previous year to which such salary relates.
5. Compute the tax on the total income after including the additional salary in the previous year to which such salary relates.
6. Find out the difference in tax at (4) and (5) above.
7. The excess of tax computed at (3) over the tax computed at (6) is the amount of relief admissible u/s 89(1). No relief is however admissible if the tax computed at (3) is less than the tax computed at (6). In such a case the assessee–employee need not apply for relief