Form 10E Income Tax: How to Claim Tax Relief Under Section 89(1)?
Updated: May 22
Imagine receiving arrears in the current year that were rightfully due in preceding years, leading to an inflated income for the present financial year and, subsequently, higher tax liabilities. To unravel this fiscal puzzle, Form 10E becomes a crucial instrument. This comprehensive guide serves you steering through the essential facets of Form 10E and empowering you to claim the rightful relief under Section 89(1)
Table of Content
What is Relief Under Section 89(1).
Section 89 of the Income Tax Act 1961 provides relief to taxpayers who receive arrears of salary or profits in lieu of salary in a particular financial year. This relief is designed to reduce the tax burden on individuals who might face higher tax liability due to the receipt of arrears.
Scenario:
Let's say an individual receives arrears of salary or profits in lieu of salary in a particular financial year, but these were due to them in earlier years. Due to the arrears, their income for the current year might appear higher than their usual income, and as a result, they could end up paying higher taxes.
Relief under Section 89:
To provide relief in such cases, Section 89 allows for the computation of tax on the total income, including the arrears, as if it had been received in the year to which it relates. Then, the difference between the tax calculated on the total income (including arrears) and the tax calculated on the income of the earlier year is determined.
This difference in tax is the relief granted under Section 89, and it is allowed to be deducted from the total tax liability of the individual for the current financial year in which the arrears are received.
To claim relief under Section 89, the taxpayer needs to fill out Form 10E and submit it to the income tax department.
What is Form 10E?
Form 10E is a form prescribed by the Income Tax Department of India for the purpose of claiming relief under Section 89(1) of the Income Tax Act, 1961. This form is used by taxpayers who have received arrears of salary or other income in a particular financial year, but such income was due in earlier years.
Purpose of Form 10E
The primary purpose of Form 10E is to facilitate the computation and claim of relief under Section 89. As mentioned earlier, this relief is designed to mitigate the additional tax burden that might arise due to the receipt of arrears in a specific financial year.
Essential Insights into Form 10E
Mandatory for Relief Claims: If a taxpayer wants to claim relief under Section 89, it is mandatory to file Form 10E. Failure to submit the form may result in the denial of the relief.
Online Submission: In recent years, the process of submitting Form 10E has been streamlined, and taxpayers can now file it online through the Income Tax Department's official e-filing portal.
Details Required: The form typically requires details such as the taxpayer's personal information, PAN (Permanent Account Number), assessment year for which relief is claimed, details of arrears received, computation of tax as per normal provisions, and the computation of tax as per Section 89.
Acknowledgment: Once the form is successfully submitted, the taxpayer receives an acknowledgment, which should be retained for future reference.
Importance of Form 10E
Filing Form 10E is crucial in ensuring that the taxpayer is not unduly burdened with a higher tax liability in the year of arrears receipt. It allows for a more equitable calculation, considering the actual period to which the arrears belong.
Who should file Form 10E among taxpayers receiving arrears of income?
The specific scenarios in which taxpayers are required to file Form 10E include:
Arrears Receipt: If an individual has received arrears of salary or profits in lieu of salary in a particular financial year, and these arrears were actually due in earlier years.
Higher Tax Liability: When the receipt of arrears causes the taxpayer's income for the current financial year to appear higher than their usual income, resulting in a higher tax liability.
Claiming Relief: Individuals who want to claim relief under Section 89 to adjust their tax liability by calculating the tax as if the arrears had been received in the year to which they relate.
Form 10E: Mandatory Requirement:
Filing Form 10E is mandatory for taxpayers who wish to avail themselves of relief under Section 89. Failure to submit the form may result in an income tax notice from the Tax Department stating that – The relief u/s 89 has not been allowed in your case, as the online form 10E has not been filed by you. The furnishing of Online form 10E is required as per sec.89 of the Income Tax Act.
How to File Form 10E Online:
1. Go to the official e-filing portal of the Income Tax Department
2. Login using your PAN, password, and date of birth.
3. Navigate to the "e-File" tab and choose "Income Tax Forms."
4. Select the option "Persons without Business/Professional Income" to access Form 10E.
5. From the drop-down menu, choose Form 10E.
6. Specify the assessment year for which you want to file Form 10E.
7. Click on 'Let's get started' to initiate the Form 10E filing process.
8. Fill in the required details accurately.
9. Submit the form electronically.
Note: Taxpayers must file Form 10E online before filing their income tax return.
What are the details required in Form 10E?
Step 1: Personal Information
Name and address of the employee claiming relief under Section 89(1).
PAN number of the employee.
Residential address of the employee.
Amount of arrear salary received (as per subrule 2 of Rule 21A).
Amount of gratuity payment received for the last 5 years (as per subrule 3 of Rule 21A).
Amount of compensation received upon termination of employment (as per subrule 4 of Rule 21A).
Amount of commuted pension received (as per subrule 5 of Rule 21A).
Step 2: Annexures
Annexure 1: Arrears or Advance Salary
Calculation of Relief under Section 89(1).
Provide details of arrears or advance salary.
Annexure 2: Details of Gratuity
Annexure 2/2A: Details of Gratuity
Annexure 3: Compensation on Termination
Annexure 4: Computation of Pension
These steps and annexures collectively form the comprehensive set of details required in Form 10E. Ensure accurate and complete information for proper relief calculation under Section 89(1) since Form 10E cannot be downloaded and filed offline. It is completely online to be filled and submitted on the Income Tax portal.
FAQ
Q1. Is it mandatory to file Form 10E if I have received arrears of salary?
Yes, it is advisable to file Form 10E if you have received arrears of salary to claim relief under Section 89.
Q2. Can I file Form 10E for arrears received in the current financial year?
No, Form 10E is typically used for arrears received in earlier financial years and not for the current financial year.
Q3. How does filing Form 10E benefit me in terms of tax liability?
Filing Form 10E helps in calculating relief under Section 89, reducing the tax liability on arrears received.
Q4. Are there any penalties for not filing Form 10E when eligible?
The Income Tax Department has made it mandatory to file Form 10E if you want to claim tax relief on your arrear income. If the form is not filed, the tax department will send you a notice.
Q5. Is there a deadline for filing Form 10E?
Yes, Form 10E should be filed before filing the income tax return for the relevant assessment year.
Q6. Can Form 10E be used to claim relief on income other than salary arrears?
No, Form 10E is specifically designed for claiming relief on arrears of salary and not for other types of income.
Q7. What details are required in Annexure 1 of Form 10E?
Annexure 1 requires details of arrears or advance salary and the calculation of relief under Section 89.
Q8. Can Form 10E be filed offline?
No, Form 10E is generally filed online through the official e-filing portal of the Income Tax Department.
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Thank you for detailing the filing of Form 10E for claiming tax relief on salary arrears. But if somebody files ITR-2 after filing Form 10E, the ITR-2 form has no specific field to mention salary arrears. As a result, the one who files ITR2 with salary arrear, are forced to pay the full tax on elevated tax slabs. There is no text in the internet, that clarifies this issue. Then what is the point taking trouble to file form 10E, because, anyway ITR2 is going to ignore it.