How to calculate your Income tax liability if in current year you get salary arrears for previous years.
Lets take an example Mr Suresh is working with private firm and during year 2013 he receives salary for current year Rs 3 lac and for also receives arrears of salary for last year as Rs 3 lacs.
If this salary is added to his total income for current year, it will increase his total tax liability since his total income will make him fall for highest income tax slab for year 2013.
To his rescue Section 89 of income tax act, help him reduce his total income tax liability.Relief when salary, etc., is paid in arrears or in advance. Section 89. Where an assessee is in receipt of a sum in the nature of salary 89a, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to clause (iia) of section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as may be prescribed Provided that no such relief shall be granted in respect of any amount received or receivable by an assessee on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i) of clause (10C) of section 10, a scheme of voluntary separation, if an exemption in respect of any amount received or receivable on such voluntary retirement or termination of his service or voluntary separation has been claimed by the assessee under clause (10C) of section 10 in respect of such, or any other, assessment year