Relief Under Section 89(1)
If employee received any portion of salary in arrears or on advance or received profit in lieu of salary, relief can be claimed u/s 89 (1).
Salary in arrears or advance, received in lump-sum is liable to tax in the year of receipt. Some relief is however allowed from tax on such receipts. Claiming of relief is optional and should be claimed only when it is advantageous to the claimant.
Calculation of relief u/s 89 when salary has been received in arrears or in advance
The relief on salary received in arrears or in advance (hereinafter to be refereed as additional salary is computed in the manner laid down in rule 21A (2) as under;
Ø Calculate the tax payable on the total income, including the additional salary, of the relevant previous year in which the same is received.
Ø Calculate the tax payable on the total income, excluding the additional salary, of the relevant previous year in which the additional salary is received.
Ø Find out the difference between the tax at (1 ) and (2).
Ø Compute the tax on the total income after including the additional salary in the previous year to which such salary relates.
Ø Compute the tax on the total income after additional salary in the previous year to which such salary relates.
Ø Find out the difference between tax at (4) and (5)
Ø The excess of tax compute at (3) over tax computed at (6) is the amount of relief admissible under section 89. No relief is, however, admissible if tax computed at (3) is less then tax computed at (6). In such a case, the assessee- employee need not apply for relief.
If the additional salary relates to more than one previous year, salary would be spread over the previous year to which it pertains in the manner explained above.