Relief Under section 89 of Income Tax

Relief under section 89 of Indian Income Tax Act is one of the important tax rebate to salaried employee. Many times employee or his/her tax consultant has forgot to claim this kind of Rebate because of its rare nature.

When an employee can claim this Rebate........????

• When employee receives salary of earlier year (i.e, salary in arrears ) in the previous year relevant to Assessment year
• When employee receives salary in advance.
• When employee receives compensations under voluntary retirement scheme (VRS) and he/she has not claim deduction under section 10(10C) of the Income tax. 

 

How relief u/s 89 is calculated.......??????

Step 1 : Calculate tax for the current year (including cees and education cess) on income including salary in arrears/advance/ compensations.

Step 2 : Calculate tax for the current year (including cees and education cess) on income excluding salary in arrears/advance/ compensations. 

 

Step 3 : Step1 - step2

 

Step 4 : Calculate tax for the year in which salary/compensation ought have been received (including cess and education cess) on income including salary in arrears/advance/ compensations. 

Step 5 : Calculate tax for the year in which salary/compensation ought have been received (including cess and education cess) on income excluding salary in arrears/advance/ compensations. 

Step 6 : Step4 - Step5 

Step 7 : Relief u/s 89 = Step3-step6 (if positive, otherwise nil)

Step8 : Tax paid for Current Assessment year = Step1-step7

Illustration :  Mr X has following income for the assessment year 2011-12

Salary income   2,30,000

other income         30,000

Here salary income includes salary of Rs.50,000 in arrears which is related to assessment year 2010-11. Income for the assessment year 2010-11 are as follows.

Salary Income  1,40,000 (excluding above 50,000)

Other income      50,000 

Calculate tax liability of Mr. X for the assessment 2011-12

Ans.    Basic exemption limit for A.Y. 2011-12 and A.Y 2010-11  is Rs. 1,60,000/-

 

Step 1 : Calculate tax for the current year (including cess and education cess) on income including salary in arrears/advance/ compensations.

                                                 Tax  = 10300 (i.e., 100000*10.3%)

Step 2 : Calculate tax for the current year (including cess and education cess) on income excluding salary in arrears/advance/ compensations.

                                                 Tax  =    4120 (i.e., 40000*10.3%)

Step 3 : Step1 - step2 = (9270-4120) = 6180.00    

Step 4 : Calculate tax for the year in which salary/compensation ought have been received (including cess and education cess) on income including salary in arrears/advance/ compensations. 

 

                                               Tax  = 8240 (i.e., 80000*10.3%)

Step 5 : Calculate tax for the year in which salary/compensation ought have been received (including cess and education cess) on income excluding salary in arrears/advance/ compensations. 

                                                Tax  = 3090 (i.e., 30000*10.3%)

Step 6 : Step4 - Step5 = (8240-3090) = 5150 

 

Step 7 : Relief u/s 89 = Step3-step6 = (6180-5150) = 1030

Step8 : Tax paid for A.Y.(2011-12) = Step1-step7 = (10300-1030) = 9270.00

Conclusion 

 

Hence Tax liability for the A.Y. 2011-12 is Rs. 9270/- and relief under section 89 is Rs. 1030.00