Section 89 of ITA, 1961 : Section 89: Relief When Salary, Etc, Is Paid In Arrears Or In Advance

Explanation using Example

Imagine Mr. Sharma, a government employee, received his salary arrears of the past three years in the current financial year. Due to this lump sum payment, his income for the year has increased, pushing him into a higher tax bracket. Normally, this would result in him paying more tax than if the arrears were spread out over the years they were actually earned.

Under Section 89 of the Income-tax Act, 1961, Mr. Sharma can apply for tax relief. If granted, this relief would allow him to reduce his tax liability by recalculating the tax as if he had received the arrears in the years they were due. This ensures that he is not unfairly taxed at a higher rate due to the one-time receipt of past dues.