Relief under section 89 :
(1) Where by reason of any portion of an assessee‘s salary being paid in arrears or in advance or by reason of his having received in any one financial year, salary for more than twelve months or a payment of profit in lieu of salary under section 17(3), his income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as prescribed. The procedure for computing the relief is given in Rule 21A.
(2) Similar tax relief is extended to assessees who receive arrears of family pension as defined in the Explanation to clause (iia) of section 57. For the purpose of clause (iia) of section 57, “family pension” means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death.
(3) No relief shall be granted in respect of any amount received or receivable by an assessee on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or a scheme of voluntary separation (in the case of a public sector company), if exemption under section 10(10C) in respect of such compensation received on voluntary retirement or termination of his service or voluntary separation has been claimed by the assessee in respect of the same assessment year or any other assessment year.
Illustration
In the case of Mr. Hari, who turned 62 years on 28.3.2016, you are informed that the salary for the previous year 2015-16 is Rs 10,20,000 and arrears of salary received is Rs 3,45,000. Further, you are given the following details relating to the earlier years to which the arrears of salary received is attributable to:
| Previous year | Taxable Salary | Arrears now received (Rs ) |
| 2010 – 2011
2011 – 2012 2012 – 2013 |
7,10,000
8,25,000 9,50,000 |
1,03,000
1,17,000 1,25,000 |
Compute the relief available under section 89 and the tax payable for the A.Y. 2016-17.
Note :Rates of Taxes:
| Assessment
Year |
Slab rates of income-tax | |||
| For resident individuals of the
age of 60 years or more at any time during the previous year |
For other resident individuals | |||
| Slabs | Rate | Slabs | Rate | |
| 2011–12 | Upto Rs 2,40,000
Rs 2,40,000 – Rs 5,00,000 Rs 5,00,000 – Rs 8,00,000 Above Rs 8,00,000 |
Nil
10% 20% 30% |
Upto Rs 1,60,000
Rs 1,60,000 – Rs 5,00,000 Rs 5,00,000 – Rs 8,00,000 Above Rs 8,00,000 |
Nil
10% 20% 30% |
| 2012–13 | Upto Rs 2,50,000
Rs 2,50,000 – Rs 5,00,000 Rs 5,00,000 – Rs 8,00,000 Above Rs 8,00,000 |
Nil
10% 20% 30% |
Upto Rs 1,80,000
Rs 1,80,000 – Rs 5,00,000 Rs 5,00,000 – Rs 8,00,000 Above Rs 8,00,000 |
Nil
10% 20% 30% |
| 2013–14 | Upto Rs 2,50,000
Rs 2,50,000 – Rs 5,00,000 Rs 5,00,000 – Rs 10,00,000 Above Rs 10,00,000 |
Nil
10% 20% 30% |
Upto Rs 2,00,000
Rs 2,00,000 – Rs 5,00,000 Rs 5,00,000 – Rs10,00,000 Above Rs10,00,000 |
|
Note – Education cess@2% and secondary and higher education cess@1% is attracted on the income-tax for all the years.
Solution
Computation of tax payable by Mr. Hari for the A.Y 2016-17
| Particulars | Incl. arrears
of salary (Rs) |
Excl. arrears
of salary (Rs) |
| Current year salary
Add: Arrears of salary Taxable Salary Income-tax thereon Add : Education cess @2% plus secondary and higher education cess @1% Total payable |
10,20,000
3,45,000 |
10,20,000
– |
| 13,65,000
2,29,500
6,885 |
10,20,000
1,26,000
3,780 |
|
| 2,36,385 | 1,29,780 |
Computation of tax payable on arrears of salary if charged to tax in the respective assessment years
|
Particulars |
A.Y. 2011-12 | A.Y. 2012-13 | A.Y. 2013-14 | |||
| Incl.
arrears |
Excl.
arrears |
Incl.
arrears |
Excl.
arrears |
Incl.
arrears |
Excl.
arrears |
|
| Taxable salary
Add: Arrears of Salary Taxable salary
Tax on the above Add: Cess@3% Tax payable
|
7,10,000
1,03,000 |
7,10,000
– |
8,25,000
1,17,000 |
8,25,000
– |
9,50,000
1,25,000 |
9,50,000
– |
| 8,13,000 | 7,10,000 | 9,42,000 | 8,25,000 | 10,75,000 | 9,50,000 | |
|
97,900 2,937 |
76,000 2,280 |
1,34,600 4,038 |
99,500 2,985 |
1,47,500 4,425 |
1,15,000 3,450 |
|
| 1,00,837 | 78,280 | 1,38,638 | 1,02,485 | 1,51,925 | 1,18,450 | |
Computation of relief under section 89
| Particulars | Rs | Rs | |
| I
ii |
Tax payable in A.Y.2016-17 on arrears :
Tax on income including arrears Less : Tax on income excluding arrears
Tax payable in respective years on arrears : Tax on income including arrears (Rs 1,00,837 + Rs 1,38,638 + Rs 1,51,925) Less: Tax on income excluding arrears (Rs 78,280 + Rs 1,02,485 + Rs 1,18,450)
Relief under section 89 – difference between tax on arrears in A.Y 2016-17 and tax on arrears in the respective years |
2,36,385 1,29,780 |
1,06,605
92,185 |
|
3,91,400
2,99,215 |
|||
|
14,420 |
Tax payable for A.Y 2016-17 after relief under section 8
| Particulars | Rs |
| Income-tax payable on total income including arrears of salary
Less : Relief under section 89 as computed above Tax payable after claiming relief |
2,36,385
14,420 |
| 2,21,965 |
Illustration
Mr. X is employed with AB Ltd. on a monthly salary of Rs 25,000 per month and an entertainment allowance and commission of Rs 1,000 p.m. each. Compute the income from salary of Mr. X for the A.Y.2016-17. The company provides him with the following benefits.
1. A company owned accommodation is provided to him in Delhi. Furniture costing Rs 2,40,000 was provided on 1.8.2015.
2. A personal loan of Rs 5,00,000 on 1.7.2015 on which it charges interest @ 6.75% p.a. The entire loan is still outstanding. (Assume SBI rate of interest to be 12.75% p.a.) 3. His son is allowed to use a motor cycle belonging to the company. The company had purchased this motor cycle for ` 60,000 on 1.5.2012. The motor cycle was finally sold to him on 1.8.2015 for Rs 30,000.
4. Professional tax paid by Mr. X is Rs 2,000.
Solution
Computation of Income from Salary of Mr. X for the A.Y.2016-17
| Particulars | Rs | Rs | |
| Basic salary [` 25,000 × 12]
Commission [` 1,000 × 12] Entertainment allowance [` 1,000 × 12] Rent free accommodation [Note 1] Add : Value of furniture [` 2,40,000 × 10% p.a. for 8 months] Interest on personal loan [Note 2] Use of motor cycle [` 60,000 × 10% p.a. for 4 months] Transfer of motor cycle [Note 3] Gross Salary Less : Deduction u/s 16(iii) – Professional tax paid Income from Salary |
48,600 16,000 |
3,00,000
12,000 12,000
64,600 22,500 2,000 12,000 |
|
| 4,25,100
2,000 |
|||
| 4,23,100 |
Note 1: Value of rent free unfurnished accommodation
= 15% of salary = 15% of (Rs 3,00,000 + Rs 12,000 + Rs 12,000) = Rs 48,600
Note 2: Value of perquisite for interest on personal loan
= [Rs 5,00,000 × (12.75% – 6.75%) for 9 months] = Rs 22,500
Note 3: Depreciated value of motor cycle = Original cost – Depreciation@10% p.a. for 3
completed years = Rs 60,000 – (Rs 60,000 × 10% p.a. × 3 years) = Rs 42,000.
Perquisite = Rs 42,000 – Rs 30,000 = Rs 12,000.