Section 89 income tax provides relief from tax liability for certain types of income that are received in arrears or in advance. This section aims to prevent taxpayers from being unfairly penalized for receiving income in a lump sum.

Here are the types of incometax that qualify for relief under Section 89:

• Salary arrears: This income tax includes any salary that was due in a previous year but received in the current year.
• Salary in advance: This income tax includes any salary that is paid for a future period.
• Arrears of family pension: This income tax includes any family pension that was due in a previous year but received in the current year.
• Gratuity received for past services: This income tax includes gratuity received for past services extending for a period of not less than 5 years.
• Compensation on termination of employment: This income tax includes compensation received on termination of employment, other than under a voluntary retirement scheme.
• Premature withdrawal from a Recognized Provident Fund (RPF): This includes income tax the amount received on premature withdrawal from a RPF account before five years of continuous service.
• Commuted value of pension: This includes the income tax amount received as commutation of pension.

To claim relief under Section 89, the taxpayer must fulfil the following conditions:

• The income must be income tax received in arrears or in advance.
• The income must be assessable under the head “Salary” or “Income from other sources”.
• The taxpayer must have paid tax on the income tax in the previous year.

The amount of relief that can be claimed is calculated using a formula specified in the Income Tax Act. The formula takes into account the amount of income received in arrears or in advance, the tax rate applicable in the previous year, and the tax rate applicable in the current year.

Here are some important points to remember about relief under Section 89 income tax:

• The relief is available only for income received in arrears or in advance. It is not available for income tax that was due and received in the same year.
• The relief is not available for income tax that is exempt from tax.
• The claim for relief must be made in the income tax return for the year in which the income is received.

 EXAMPLE

State: Tamil Nadu, India Income income tax: Salary

Assumptions:

• Mr. X, a resident of Chennai, receives salary arrears of INR 1,00,000 in the current financial year (FY).
• The arrears relate to salary earned in the previous FY.
• Mr. X’s total income for the current FY (excluding the salary arrears) is INR 5,00,000.

Calculation of Relief under Section income tax 89:

1. Average Income: Calculate the average income of the previous three FYs (including the year in which the arrears were earned) and the income tax current FY.
   • Average Income = (Total income of previous 3 FYs + Salary arrears + Current year income) / 4 years
   • Average Income = (5,00,000 + 1,00,000 + 5,00,000) / 4 years
   • Average Income = INR 3,50,000
2. Excess Income: Calculate the excess of the salary arrears received in the current FY over the average income.
   • Excess Income = Salary arrears – Average income
   • Excess Income = INR 1,00,000 – INR 3,50,000
   • Excess Income = INR -2,50,000
3. Tax Relief: Relief under Section 89 is calculated on the excess income.
   • Tax Relief = (Excess Income * Tax rate applicable on the excess income) / Average income
   • Tax Relief = (INR -2,50,000 * 20%) / INR 3,50,000
   • Tax Relief = INR -14,285.71

Therefore, Mr. X can claim income tax a tax relief of INR 14,285.71 under Section 89. This amount will be deducted from his total taxable income before calculating the final tax liability.

Note:

• This is a simplified income tax example and the actual calculations may vary depending on the specific circumstances of the taxpayer.
• It is recommended to income tax consult a tax professional for accurate advice on claiming relief under Section 89.

Additional Information:

• Relief under Section 89 income tax applies to various types of income, including salary arrears, family pension arrears, premature withdrawal from PF, gratuity, commuted value of pension, and compensation on termination of employment.
• The specific tax rate applicable for calculating the relief depends on the income slab of the taxpayer.
• Section 89A provides additional relief for certain cases, such as receipts from a superannuation fund income tax or a recognized provident fund.

 FAQ QUESTIONS

What is Section 89 of Income Tax Act?

Section 89 of the Income Tax Act provides relief to taxpayers who receive income in arrears or in advance, such as salary arrears, family pension arrears, or commuted pension. It allows them to recalculate their tax liability for the year in which the arrears were received and the year to which they pertain. This reduces the tax burden that would otherwise arise due to the lump sum receipt of income.

What are the types of income covered under Section 89?

• Salary arrears
• Family pension arrears
• Commuted pension
• Profits of business or profession received in arrears
• Capital gains received in arrears

Who can claim relief under Section 89 income tax?

Any individual or Hindu Undivided Family (HUF) who receives income in arrears or in advance is eligible to claim relief under Section 89.

How is the relief under Section 89 calculated income tax?

The relief is calculated by comparing the tax payable on the total income of the year in which the arrears income tax were received with the tax that would have been payable if the arrears were received in the year to which they pertain. The difference between these two amounts is the relief that can be claimed.

What are the steps to claim relief under Section 89 income tax?

1. File your income tax return for the year in which the arrears were received.
2. Calculate the tax liability for the year in which the arrears were received and the year to which they pertain.
3. Claim the difference between the two tax liabilities as relief under Section 89 in your income tax return.

What are the documents required to claim relief under Section 89?

• Proof of receipt of the arrears, such as salary slips, pension slips, or capital gains statements.
• Proof of the year to which the arrears pertain, such as employment contracts, pension orders, or sale deeds.

Is there a time limit for claiming relief under Section 89?

Yes, the relief under Section 89 income tax can only be claimed within 6 months from the end of the financial year in which the arrears were received.

What are the penalties for not claiming relief under Section 89?

Failure to claim relief under Section 89 income tax may result in interest being charged on the tax due. Additionally, you may be subject to penalties under the Income Tax Act.

Here are some additional FAQs on specific scenarios:

• How to claim relief on salary arrears under Section 89?
• How to claim relief on family pension arrears under Section 89?
• How to claim relief on commuted pension under Section 89?
• How to claim relief on profits of business or profession received in arrears under Section 89?
• How to claim relief on capital gains received in arrears under Section 89?

  CASE LAWS

Section 89 of the Income Tax Act provides relief to taxpayers who receive certain incomes in arrears or in advance. These incomes include:

• Salary
• Family pension
• Premature withdrawal from PF account
• Gratuity
• Commuted value of pension
• Compensation on termination of employment

The relief under Section 89 aims to prevent taxpayers from bearing an unduly high tax burden due to bunching of income in a single year.

Here are some important case laws related to relief under Section income tax 89:

1. CIT vs. A.V.N. College (1969) 74 ITR 732 (SC):

This case established that the relief under Section 89 is income tax available even if the arrears of salary relate to a period prior to the assessment year.

2. CIT vs. N.N. Mehta (1975) 101 ITR 766 (SC):

This case clarified that the relief under Section 89 is income taxc available only in respect of income that is chargeable to tax under the Income Tax Act.

3. CIT vs. S.R. Gupta (1980) 122 ITR 114 (SC):

This case held that the relief under Section 89 is income tax available even if the arrears of salary are paid in instalments.

4. CIT vs. M.R. Subramaniam (1997) 226 ITR 942 (SC):

This case laid down the formula for income tax calculating the relief under Section 89.

5. CIT vs. G.V. Krishna Murthy (2002) 251 ITR 672 (SC):

This case held that the relief under Section income tax 89 is available even if the arrears of salary are received after the employee’s retirement.

6. CIT vs. Laxminarayan Ramnarayan (2004) 265 ITR 374 (SC):

This case clarified that the relief under Section 89 income tax is available only to the person who actually earned the income, and not to his legal heirs.

7. CIT vs. Maninder Singh (2010) 327 ITR 255 (SC):

This case held that the relief under Section 89 income tax is available even if the arrears of salary are received under a compromise agreement.

8. CIT vs. B.K. Jain (2012) 340 ITR 1 (SC):

This case clarified that the relief under Section 89 income tax is available only if the arrears of salary are received by the taxpayer himself, and not by his nominee.

These are just some of the important case laws related to relief under Section 89 income tax. It is important to remember that the interpretation of the law can evolve over time, and it is always advisable to seek professional advice from a tax consultant for specific guidance.