Income tax relief for arrears of salary

Hardships caused due to higher incidence of tax can be avoided by availing useful relief for taxation of arrears

- JIGAR MUKESH PATEL

What are arrears of salary?

In the context of salary, an arrear is value of money that should have been paid in the past as a salary and was missed out. Arrears are payments made to compensate for not paying salaries on time. A salaried employee may at times, receive lump-sum payment in the form of arrears of salary. This payment relates to services rendered in the past and if this lump-sum payment is taxed in the year of receipt, the tax incidence may be very heavy due to the higher slab rate of tax.

Tax relief on arrears

With a view to ensure that no hardship is caused due to such high incidence of tax, Section 89 of the Income-tax Act provides for allowing tax relief in such situations.