Definition
Section 89 Relief (Arrears of Salary)
Section 89 gives tax relief when you receive salary arrears or advance that push you into a higher tax bracket in one year.
Section 89(1) provides relief when you receive arrears, advance salary, or certain lump-sum payments that relate to earlier years but are taxed entirely in the year of receipt, potentially pushing you into a higher slab. The relief recomputes tax as if the income had been received in the years it pertained to.
To claim it you file Form 10E on the income-tax portal before filing your return; failing to file Form 10E can lead to the relief being disallowed. The relief effectively neutralises the extra tax caused purely by the bunching of income.
It is commonly used by employees receiving pay-commission arrears or delayed salary, and by pensioners receiving commuted pension or arrears, ensuring they are not unfairly taxed for income timing they did not control.
Related terms
- Income Tax SlabIncome tax slabs are the income bands at which progressively higher tax rates apply, so higher earnings are taxed at higher rates.
- Form 16Form 16 is the certificate your employer gives you summarising your salary and the tax deducted at source during the year.
- ITR (Income Tax Return) TypesITR forms are different return formats (ITR-1 to ITR-7) prescribed for different categories of taxpayers and income sources.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.