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        Income Tax

        Example:-During the previous year ending 31st March, 2013, X, a salaried employee received ₹ 10,67,000 as basic salary and ₹ 20,000 as arrears of bonus of the financial year 1992-93. During the previous year 1992-93, X has received ₹ 50,000 as salary. X deposits ₹ 1,500 (during 1992-93) and ₹ 10,000 (during 2012-13) in PPF.

        11 August, 2015

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        Chapter No. 29 - Salary - Relief if Salary is received in Arrears or in Advance - Section 89(1)

        Particulars

        Taxable income and tax liability on “receipt basis”

        Taxable income and tax liability on “receipt basis”

        2013-14

        1993-94

        2013-14

        1993-94

        Salary

        10,67,000

        50,000

        10,67,000

        50,000

        Arrears of Salary

        20,000

        -

        -

        20,000

        Gross Salary

        10,87,000

        50,000

        10,67,000

        70,000

        Less: Standard deduction us/ 16(i)

        Nil

        12,000

        Nil

        12,000

        Gross Total Income

        10,87,000

        38,000

        10,67,000

        58,000

        Less: Deduction us/ 80C

        10,000

        Nil

        10,000

        Nil

        Net income

        10,77,000

        38,000

        10,57,000

        58,000

        Tax on net Income

        1,53,100

        2,000

        1,47,100

        6,800

        Less: Rebate u/s 88

        Nil

        300

        Nil

        300

        Tax

        1,53,100

        1,700

        1,47,100

        6,500

        Add: Surcharge

        Nil

        -

        Nil

        -

        Tax and Surcharge

        1,53,100

        1700

        1,47,100

        6,500

        Add: Cess & SHEC

        4,593

        -

        4,413

        -

        Tax Liability

        1,57,693

        1700

        1,51,513

        6,500

         

        Tax Liability of the two AY on receipt basis                                                   1,59,393

        Tax Liability of the two AY on accrual basis                                                   1,58,013

        Tax relief u/s 89 for the AY 2013-14 (i.e. 1,59,393 – 1,58,013)                     1,380

        Tax payable for the AY 2013-14 (i.e. 1,57,693 – 1,380)                                 1,56,313

         

        Relief under Section 89(1): compare tax on receipt and accrual bases to determine relief for salary arrears and adjust current tax payable. Relief for salary received in arrears or advance is determined by computing tax on the aggregate income on the receipt basis and comparing it with tax computed as if the income had been charged to the earlier year(s); the relief equals the difference. The example aggregates salary and arrears, applies standard and specified deductions, computes net income and tax for the years on receipt and accrual bases, and derives the relief amount which is then deducted from current year tax payable.
                        Cases where this provision is explicitly mentioned in the judgment/order text; may not be exhaustive. To view the complete list of cases mentioning this section, Click here.
                          Provisions expressly mentioned in the judgment/order text.

                              Relief under Section 89(1): compare tax on receipt and accrual bases to determine relief for salary arrears and adjust current tax payable.

                              Relief for salary received in arrears or advance is determined by computing tax on the aggregate income on the receipt basis and comparing it with tax computed as if the income had been charged to the earlier year(s); the relief equals the difference. The example aggregates salary and arrears, applies standard and specified deductions, computes net income and tax for the years on receipt and accrual bases, and derives the relief amount which is then deducted from current year tax payable.


                              Note: It is a system-generated summary and is for quick reference only.
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