Here’s How You Can File An Income Tax Return On Arrears Received For Previous Years

When your total income includes any past dues received as arrears in the current year, you would naturally be worried about having to pay a higher tax on such earnings. The addition of previous year’s income could well put you in a higher tax slab rate.

Worry not. In such circumstances, Section 89(1) of the Income Tax Act, 1961 could come to your use.

It is to save you from any additional burden due to delay in receiving arrears that the Income-tax Act, 1961 provides taxpayers with a relief under Section 89(1). To put it simply, you do not pay more taxes if there was a delay in payment made to you and if you were in a lower tax bracket for the year for which you received the money. 

Says Akhil Chandna, partner, Grant Thornton Bharat LLP, an accounting and advisory organisation: “The Income-tax Act, 1961, and rules thereunder, provides the mechanism for claiming relief with respect to tax liability arising on arrears of salary received in any financial year. The tax relief on arrears is allowed in accordance with Section 89(1) of the Act, and a taxpayer is required to file Form 10E in order to claim the tax relief.”

Form 10E was introduced with effect from FY 2014-15. One can file it by logging in to the income-tax e-fling portal. It is mandatory to file the same for claiming tax relief, and this is required to be completed before one files the income tax return. 

“Taxpayers are required to submit details related to the arrears, such as income and tax liability, in the relevant financial years to which the arrears pertains to, in Annexure 1, which forms part of Form 10E. It is advisable to have the tax computation and tax return of the relevant prior financial years with you while filling up Form 10E,” says Chandna. 

How To File Form 10E? 

You can file Form 10E by the online method. Here are the steps to follow.

• First, log in to www.incometax.gov.in with your user ID and password. After you have logged in, click e-File> Income Tax Forms> File Income Tax Forms. 

• On the screen that appears, click on the ‘persons not having any business/professional income’ tab, and select Form 10E. 

• You will be directed onto another screen. 

• Select the assessment year, and click on the ‘continue’ button.

• On the screen that appears next, click on the ‘let’s get started’ button to start filling up the form. 

• Now select the relevant items regarding the particulars of income, and click on the ‘continue’ button.

• On the next screen, click on the links, and provide details for each section.

• After filling in all details in Form 10E, click on the ‘preview’ button. 

• Then proceed to e-verify. 

• A message will be displayed on the successful submission of the form mentioning the transaction ID, and acknowledgement receipt number. 

Do note that the tax relief as computed in Form 10E is then required to be submitted in the relevant tax return form being filed. This will ensure that the tax relief is taken into account while processing the tax return. 

It is important to note that the relevant ITR form does not have an option to submit details for prior years to which the arrears relate to, and therefore, these details are to be submitted through Form 10E only.