Income under the head of Salaries :

Relief on arrears of salary

An employee, when he receives salary in arrears, can avail relief on arrears of salary u/s 89(1) of the Income Tax Act. The relief is provided to mitigate the hardships on account of differential rate of income tax for different years. The procedure for computing the relief is given under Rule 21A of the Income Tax Rules. The following procedure shows how to calculate the relief on arrears of salary or salary received in advance. No relief

1. Tax payable on the total income should be calculated including the arrears of salary.
2. Tax payable on the total income should be calculated excluding the arrears of salary.
3. The difference between the tax payable (i.e. the difference of 1 and 2 above) should be worked out.
4. Calculate the tax on the total income including the arrears of salary. (Tax to be calculated after claiming all deductions/rebates).
5. Calculate the tax on the total income excluding the arrears of salary. (Tax to be calculated after claiming all deductions/rebates).
6. The difference between the tax (i.e. the difference of 4 and 5) should be worked out.
7. Difference between the tax payable (at 3 above) and tax (at 6 above) shall be the amount of relief admissible u/s 89(1) of the Income Tax Act.
8. Relief is, however, not admissible if the tax payable (as per col.3 above) is less than the tax (as per col.6 above). In such a case the employee cannot apply for relief.