Bailabel Type : bailable

Description

Section 89 of the Income Tax Act, 1961 provides a relief to individuals when they receive salary, pension, or any other income in arrears or in advance. This provision is designed to avoid a situation where a person is taxed disproportionately on income received in a lump sum for a previous year, or when they are paid ahead of time for future years.

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Key Features of Section 89:

1. Income Paid in Arrears:

• Arrears of Salary or Pension: When a person receives salary or pension for a previous year in a subsequent year, the additional income might be taxed at a higher rate, as it could push the total income into a higher tax bracket.
• This section allows the taxpayer to spread the arrears of salary or pension over the years in which it pertains (i.e., the previous years) for the purpose of computing tax.
• Relief under Section 89 helps in reducing the tax burden that arises due to the increased income in the current year.

2. Income Paid in Advance:

• Advance Salary: Similarly, if a person receives salary or pension for a future period in the current year (advance payment), they may face higher taxes due to a spike in their income for that particular year.
• Under Section 89, relief is given by allowing the individual to compute the tax as if the income were earned in the period it relates to, rather than being taxed in the year it is received.

3. Calculation of Relief:

• The taxpayer must calculate the tax payable both with and without the inclusion of the arrears or advance payment.
• A formula is used to calculate the additional tax that would have been payable on the arrears or advance if the income were spread over the relevant years.
• The relief is then given as a refund of the excess tax paid.

4. Process of Claiming Relief:

• The taxpayer needs to file a revised return (if applicable) and provide a break-up of income for the relevant years in which the salary or pension relates.
• The relief can be claimed through Form 10E, which needs to be submitted before filing the income tax return.
• The income will be adjusted accordingly, and the tax will be recalculated based on the original period of earning, leading to a reduction in the overall tax liability.

5. Types of Income Affected:

• Salary (including basic salary, allowances, bonus, etc.)
• Pension
• Other types of income that are received in arrears or advance and are subject to income tax.

Punishment

If a taxpayer provides incorrect details or falsely claims relief under Section 89, the following consequences may arise:

1. Penalty for Concealment of Income (Section 271(1)(c)):

   • If a taxpayer conceals income or gives false information in the return, they may face a penalty under Section 271(1)(c) for concealing income or furnishing inaccurate information.
   • The penalty can be 100% to 300% of the tax evaded.

2. Interest for Underpaid Taxes (Sections 234A, 234B, 234C):

   • If the income is incorrectly reported or relief is claimed improperly, the taxpayer may have to pay interest for late filing or underpayment of taxes under sections 234A, 234B, and 234C.

3. Prosecution for Willful Evasion (Section 276C):

   • If there is willful evasion of taxes due to incorrect claims or false information, prosecution may be initiated under Section 276C.
   • The person may face imprisonment for 3 months to 7 years and also be subject to a fine.