Claiming tax relief on salary arrears? Don’t forget to file Form 10E

Receiving salary or pension in arrears might change your tax situation. You may fear it’s going to move you up a tax slab. Or tax rates may be higher in the year arrears are received as compared to the year to which they belong. To protect you from any additional tax burden, due to delay in receiving income, the tax laws allow a relief under Section 89(1). This relief can be directly claimed in your income tax return, if you have received any portion of your salary in arrears.

The Income Tax Department has made it mandatory to file Form 10E if you want to claim relief under Section 89(1). As per Section 89(1), tax relief is provided by recalculating tax for both the years; the year in which arrears are received and the year to which the arrears pertain. Your taxes are adjusted assuming arrears were received in the year in which they were due.

Let’s understand this calculation in detail. Tax for the year in which arrears are received is calculated both inclusive as well as exclusive of arrears. The difference is the tax on additional salary, let’s call it x. Now tax is computed for every year to which the arrears pertain. Including as well as excluding arrears. The difference is arrived at, let’s call it y. If x is more than y, relief is available to the taxpayer.

Here are some important things to remember while claiming relief on arrears:

Form 10E must be filed online on the Income Tax Department website. Taxpayers who claimed relief last financial year but did not file Form 10E received a notice from the department for non-compliance. Your return is not processed until you submit this form.

Many taxpayers are confused about which assessment year to choose while filing Form 10E. Arrears may pertain to earlier years, however, one has to choose the assessment year in which arrears have been received. For example, if arrears are received in financial year FY 2015-16, choose assessment year as AY 2016-17.

Form 10E has to be submitted online and no copy is required to be attached with your tax return. However, you must file and keep all documents safely in your records.

Your employer may ask for confirmation of submission of Form 10E before adjusting your taxes and allowing tax relief. It is not mandatory to submit this form to the employer. You can claim tax relief by filing this form at the time of submitting your tax returns.

The salary is usually taxable when it is due or when it actually received, whichever is earlier. The arrears are usually announced from a back date and therefore cannot be taxed when due.

Relief under Section 89(1) is also allowed to those who receive family pension in arrears. The calculation is the same as mentioned above. Do remember this very important step while filing your returns if you have received arrears during the financial year.

This article was published in The Economic Times on 26 July 2016.

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7 Responses to Claiming tax relief on salary arrears? Don’t forget to file Form 10E

  1. Mahesh thallapalli July 28, 2016 at 11:18 am #

    I had joined an organization in the month of February 2016 and I received arrears of February and March months salary in April 2016.i don’t have any income for the FY 15-16 except the salary of February and March which i received in April i.e FY16-17. Should I file ITR for the FY 15-16 though my income is clearly less than 2.5L. How to proceed???

  2. Maneet July 30, 2016 at 9:15 pm #

    where should i put the relief received under section 89 (1) in clear tax website?

    • cleartax-team August 1, 2016 at 9:15 am #

      Hi Maneet, go to ‘Income Sources’ and then ‘Salary’ tab, you’ll see a box on the right ‘Claim Relief’. Click on that. Do let us know if you need any other assistance.

    • archana August 5, 2016 at 1:56 am #

      thanks alot for question and answer proved very useful

  3. Rajeev P A July 31, 2016 at 8:43 am #

    I filed ITR for the assessment year on 29th May and claimed for a refund of RS. 7300/-. But later I came to know that filing form 10E had to be done along with online ITR filing. I forgot to file form 10E at the time of ITR filing. Now income tax department has processed and settled the refund amount of RS. 1620/- to my account. Since I had not filed Form 10E for claiming relief, they had not given the tax relief of RS. 5680/-. Now on 29th July I filed Form 10E and claimed for relief. Whether ITD will accept this and process my claim?

    Rajeev P A

    • cleartax-team August 1, 2016 at 9:13 am #

      You’ll have to file a rectification request in this case & ask for reprocessing of the case. If you need a CA to assist you please write to us