If your employer pays your past dues in the current financial year, you may incur higher taxes. You might have been in a lower tax bracket the previous financial year. But the salary arrear might propel you to a higher tax slab.
However, you can avoid paying higher taxes on such delayed income by claiming tax relief under Section 89(1) of the Income Tax Act 1961. But to avail of this benefit, you must file a 10E form online from the income tax authorities’ e-filing portal. The procedure and necessary steps are described below.
What is form 10e?
If you want to apply for tax relief under Section 89(1) of the Income Tax Act of 1961, you must submit a 10E form. You are qualified to request tax relief for delayed salary received in the form of arrears under Section 89(1) of the Act. Part B of your Form 16 contains a reflection of any received arrears.
Form 10E filing, which can be submitted by a government employee or any employee working for a business, cooperative society, university, local authority, institution, association, or body, is needed to provide specifics of revenue received under Section 192(2A).
What is Tax Relief under Section 89(1)?
The following sorts of arrears that you as a taxpayer receive are taxable in the same year that they are received:
1. Payroll Deferrals
2.advance payment
3.Unpaid family pension
4.Pension for commuting
However, Section 89(1) permits you to lessen the increased tax obligation brought on by any delays in receiving such revenue.
Steps to file Form 10E
1. Go to the website https://incometaxindiaefiling.gov.in/.
2. Log into your e-filing account using your User ID, password and date of birth.
3. Click on the ‘e-File’ tab and select ‘Income Tax Forms.’
4. On the next screen, enter your PAN and select ‘FORM NO 10E’ under the ‘Form Name’ drop-down menu.
5. Choose the correct Assessment Year (AY) for which you need to file Form 10E.
6. Opt for the Submission Mode you prefer.
7. Provide relevant details and select ‘Save Draft.’
8.. Since you are filing the form for salary arrears, select Annexure-I and enter the applicable information.
9. Verify the form.
10. Click on the ‘Preview and Submit’ button and check your entries before submitting..
How to determine if you qualify for tax relief?
As per Section 89(1), to apply for the tax relief, the income taxes for both the year in which the salary was due and the year when you received it are recalculated.
1. Calculate the tax payable for the year in which you received the arrears. First, calculate by including the arrear amount in your taxable income. Then calculate after excluding it.
2.Subtract the second amount from the first. This difference is the tax on the arrear. Suppose this sum is A.
3. Now, determine the payable tax for the year in which the salary was delayed without adding the arrear.
4. Again, determine the tax payable after adding the arrear to your taxable amount.
5. Compute the difference between the two tax amounts. Suppose this sum is B.
If A is higher than B, you can avail of the 89(1) relief.
Which AY to choose while filing Form 10E?
You have to select the AY during which you have received the salary arrears, even if the arrears are for an earlier year. For example, if you received arrears for the 2019-2020 financial year, you have to select AY 2020-2021.
When to submit Form 10E, before or after filing the income tax return (ITR)?
It is mandatory to submit Form 10E filing before you file your ITR. Otherwise, the tax authorities will not process your return.
Is it necessary to attach a copy of Form 10E with the ITR?
You have to submit Form 10E online. You need not attach a copy of the form with your ITR because all ITRs are annexure-less. However, you may want to keep a copy with yourself for your tax records. The AO might ask for such documents in the future.
Although it is not compulsory to provide Form 10E to your employer, the organization where you work might ask to see a confirmation of submission.
Who can file Form 10 E?
Any salaried employee working in the following establishments can furnish particulars of arrears received in Form 10E:
1. government organization
2. company
3. university
4. institution
5. local authority
6. co-operative society
7. association or body
Claiming exemptions under Section 89(1) in the ITR without submitting Form 10E first, results in a non-compliance notice from the tax department. Hence, fill out this form carefully and submit it on time.
Important Things to Consider While Filing Form 10E
When completing the 10E form to claim tax relief on wage arrears, keep the following in mind:
1. On the website for the Income Tax Department, you must submit Form 10E online.
2. The Income Tax Department would send you a notice for non-compliance if you had requested tax relief in the prior fiscal year but had failed to file Form 10E.
3. Before you file your income tax return, you must first submit the 10E Form online.
4. While arrears on salary may relate to earlier fiscal years while filling out Form 10E, you must select the Assessment Year in which you received the arrears.
5. No copy of the Form 10E that was submitted along with your income tax return needs to be included (keep a copy, however, for your record).
6. While it is possible for your employer to request confirmation after you have submitted Form 10E, doing so is not required.
7. Family Pension paid in arrears is also eligible for a tax reduction under Section 89(1).
8. If you have already claimed tax exemption on VRS (Voluntary Retirement Scheme) compensation under Section 10, there is no tax relief under Section 89(1).
Wrapping Up
You can submit Form 10E filing online to request tax relief under Section 89(1) of the Income Tax Act of 1961 by following the directions provided above. If you want to lower your tax obligation on the salary payments you received in arrears, you must submit a 10E Form. To guarantee that you file the income tax return accurately and without any hassles, you must see an expert if you have any questions, worries, or issues with Section 89(1), Form 10E, or tax filing.
