There can be situations where the arrears or advance salary is taxed at a higher rate in the year of receipt as compared to the year to which it pertains. In such a case, the employee is given a relief from tax, which is equivalent to the additional tax liability arising out of the receipt of the arrears.

The Finance Act, 2021, inserted a new Section 89A in the Income-tax Act, 1961, (ITA), to provide relief to residents who have income from foreign retirement benefits accounts. A few countries tax income from such overseas retirement benefits accounts on a receipt basis.

What is Form 10E? In case of receipt in arrears or advance of any sum in the nature of salary, relief u/s 89 can be claimed. In order to claim such relief, the assessee has to file Form 10E. The Form must be filed before filing the Return of Income.

Section 89(1) – Relief of Salary If the assessee has received a potion of his salary 'in arreas or in advance', or received a Family Pension in arrears, the Income Tax Act allows you to claim tax relief under section 89(1). Tax liabilities for a taxpayer are calculated from the income earner during that financial year.

How do you calculate arrears? Start with the employees' regular monthly salary. Calculate the amount from the end of the previous month up to the appropriate arrears date. Subtract the amount that you have already paid until the arrears effective date. The remaining amount gives you the arrears component.

E-Filing of Form 10IE The individual should electronically submit Form 10IE. To choose the new tax system for FY 2020–2021 and later, taxpayers must submit the form through the income tax department portal. Either a digital signature or an electronic verification code will be used to submit the form (EVC).