Right here’S How To Calculate Reduction For Wage Arrears And How To Declare It
As a salaried worker, chances are you’ll obtain some arrears or advances which can be taxable within the yr they’re obtained. This will likely embody wage arrears, advance wage, household pension arrears, commuted pension, any compensation on termination of employment, to checklist just some.
So, how are you going to declare it whereas submitting an revenue tax return (ITR)?
Nicely, when you obtain any such quantity in a present yr, it’ll have a subsequent impression on gross wage resulting in a big soar in tax legal responsibility. Consequently, this can push you to the next revenue tax slab.
Therefore, the revenue tax act permits reduction underneath Part 89(1) to scale back the impression of further tax legal responsibility arising from receipt of wage arrears. This reduction could be claimed if the tax payable is increased after receiving such arrears.
In case there isn’t a further tax legal responsibility, reduction isn’t allowed, Archit Gupta, founder and CEO of Clear, advised CNBC-TV18.com.
Gupta additional defined the calculation of reduction from wage arrears underneath Part 89(1), citing an instance.
Mr X (non-senior citizen) has a web taxable revenue is Rs 12,00,000 within the monetary yr (FY21-22). He obtained wage arrears of Rs 3,00,000 from the monetary yr (FY12-13), and his web taxable revenue in FY12-13 was Rs 8,00,000 (together with arrears).
To compute the reduction underneath Part 89(1), let’s discover out the tax legal responsibility for FY21-22 and for FY12-13.
Tax legal responsibility for FY21-22
Step-1: Calculate wage inclusive of arrears.
Complete taxable revenue: Rs 12,00,000 + Rs 3,00,000 = Rs 15,00,000
Earnings tax: Rs 2,62,500
Cess: Rs 10,500
Complete tax legal responsibility = Rs 2,73,000
Step-2: Calculate wage with out arrears
Complete revenue: Rs 12,00,000
Earnings tax: Rs 1,72,500
Cess: Rs 6,900
Complete tax legal responsibility = Rs 1,79,400
Step-3: Distinction between Tax at Step-1 and Tax at Step-2
Rs 2,73,000 – Rs 1,79,400 = Rs 93,600
Tax legal responsibility for FY12-13
Step-4: Calculate wage inclusive of arrears
Complete revenue: Rs 8,00,000
Earnings tax: Rs 90,000
Training cess: Rs 2,700
Complete tax legal responsibility: Rs 92,700
Step-5: Calculate the wage with out arrears
Complete revenue: Rs 5,00,000
Earnings tax: Rs 30,000
Training cess: Rs 900
Complete tax legal responsibility: Rs 30,900
Step-6: Distinction between tax at Step-4 and tax at Step-5
Rs 92,700 – Rs 30,900 = Rs 61,800
Step-7: Reduction underneath Part 89(1): Step-3 minus Step-6
Rs 93,600 – Rs 61,800 = Rs 31,800
Step-8: Tax payable:
Tax at Step-1 minus Reduction underneath Part 89(1)
Rs 2,73,000 – Rs 31,800 = Rs 2,41,200
Be aware: The entire revenue is taxable revenue after claiming all of the exemptions and deductions.
declare reduction underneath part 89(1)?
To say reduction underneath Part 89(1), you’re required to submit kind quantity 10E.
“On-line submitting of this kind is obligatory. You mainly want to say the particulars of your revenue obtained in a selected monetary yr, together with arrears or advances, if any, Type quantity 10E is required to be filed earlier than submitting your tax return. You additionally want to make sure that you select Annexure-1 for wage arrears,” Gupta mentioned.