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Many a time we receive the salary due from our employers at a date later than the year the salary was earned in. For instance, if you are a government employee then the implementation of a pay commission report could change your salary or pension amount post facto. Another example is if you are changing jobs just when the financial year is due to end. In that case you could receive the last couple of salaries with your full and final settlement. These types of emoluments, paid after the financial year they were earned, generally qualify as arrears. Besides saving taxes on salary arrears, the Income Tax Act also provides for tax savings through other sections like 80C.
When a payment arrear is received, it changes one’s income tax situation. While you are actually in the X income bracket by virtue of your total taxable income, it might push you up in the income tax slab structure. Moreover, the tax slab might be higher because the government changed it in a particular year. As such the income tax rules have been designed to help you deflect an extraneous income tax slab arising from salary arrears by settling it in the actual years they were earned.
This relief can be sought under Section 89(1) of the Income Tax Act. Section 89(1) allows any citizen to claim the tax benefit for salary received in arrear, gratuity received for past services extending a period of not less than 5 years but less than 15 years, compensation on termination of employment, and payment of commutation of pension.
However, it is mandatory to fill Form 10E to avail the relief. While it is like any other income tax form such as 16A, 16B, 16C it’s always good to know the specifics of a particular form. As such let’s take a look at a step by step process of how to fill 10E.
Checking eligibility and tax relief under section 89(1)
Important points to remember
More tax benefits
Click here to use - Income Tax Calculator
Besides saving taxes on salary arrears, the Income Tax Act also provides for tax savings through other sections — most notably through Section 80C which allows you to save tax on life insurance or term insurance premiums. You avail a tax deduction up to Rs 1,50,000 through your life insurance and term insurance premiums.
If you are planning to buy a life insurance policy or a term insurance cover, do consider the iSelect Smart360 Term Plan from Canara HSBC Life Insurance — with premiums starting as low as Rs 12 per day. It is a tailor-made plan with a whole life cover, return of premium, multiple payout options, increase coverage option and tax benefits.
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