INCOME TAX RELIEF UNDER SECTION 89(1) OF IT ACT

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Queries have been received from some pensioners regarding the Income Tax on pension arrears received by them. A few have reported that the banks have already deducted the Tax at Source (TDS) and wanted to know how to compute the reli= ef in Income Tax when the pension is received in arrears.

The Income Tax is computed at various slabs. After an initial ceiling limit upto which one’s income is not taxable, the tax slabs= are at 10 %, 20 % and 30 % of the total annual income. The initial ceiling varies = in each year. The women and senior citizens have a higher ceiling limit. Also = for Income Tax purposes, the age for consideration as a senior citizen was 65 y= ears upto the financial year 2010-11. Now with effec= t from this financial year 2011-12, one is considered as senior citizen on complet= ion of 60 years. For the information of all concerned, the tax slabs for the ye= ars 2006-2007 to 2011-2012 are attached= . [Click here to get access to tax slab.doc…….]<= u>

Now, for this financial year 2011-12 (assessment year 2012-13) all pre-2007 BSNL pensioners have either received their pension arrears or may be receiving shortly. Since all these pensioners fall in senior citizen category, tax ceiling limit for them is Rs 2.5 lakhs for this= year. So if one’s income is more than Rs 2.5 lakhs, o= ne would be taxed in the normal course.

But the income received in this year includes the pension arrears of earlier ye= ars also. So one can show these arrears as the income of the earlier years and claim relief under Section 89(1) of Income Tax Act. One can submit a statem= ent in Form 10E and claim for relief. For the benefit of the interested pension= ers, the Form 10 E is attached herewith. In or= der to make one’s task easier to provide the required personal input in it, a few factors which shall be common for all have already been provided. [Click here to access= the Form10 E…..]. Further, one has to calculate the year-wise arrears received to claim the relief. This can easily be obtained with the = help of Pension Arrears Calculation table displayed on the top of the main page = of our website.<= /p>

Those who have already paid the Income Tax for the earlier years, they must be ha= ving the acknowledgement form showing the particulars of income and the tax that they have paid in each year. Even if some pensioners had not been within taxable limits in the earlier years, they know their income in those earlier years. Now, one has to add the arrears of each year to the income of the respective year and work out the ITAX to be paid with the arrears in each of the past year. Thus, the additional Tax to be paid for the past years will = be worked out [Please see Table A in Form 10 E. (Let this additional Tax amount be Rs. X)]

Now for the current year 2011-12, one has to compute one’s Tax on the total inc= ome including the total arrears received. Again, the arrears pertaining to earl= ier years be deducted from this year’s income and then Tax on the income has to= be computed. Work out the difference between the two. [Let this amount be Rs Y]. So Tax r= elief would be Rs Y-X. It would be seen that in many = cases, there will be substantial amount of tax relief.

Since apart from the pension, a person may be in receipt of other income like bank interest etc., the income Tax calculations will vary for each individual. O= ne has to work out the tax calculation and give the worksheet to the bank. If = the Tax have already been deducted and remitted to ITAX Department, one can sub= mit IT return and get refund.

Relief under Sec 89(1) for arrears is to be claimed by an individual only if it is gainful to him. That is only if Y- X, calculated as above, is positive. If = it is found negative or nil, one need not claim the relief. Such a situation is possible only in case of a few since in the earlier years the income tax ceiling was low and the tax slabs were also narrow. Further, for some perso= ns, the income from other sources like bank interest/post office deposits etc might have varied substantially in the past years= and the current year.

The Income tax payers will surely find the Form 10E as very simple. Otherwise, = if one is not sure, assistance of one’s auditor can be sought for. Otherwise, = The Tax Return Preparer in the Income Tax office may also help.

[For any further query, please mail to: rathan_aangarai@yahoo.com or gen= secaibsnlrea@yahoo.com]

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