RELIEF ON INCOME TAX FOR ARREARS RECEIVED

WE ARE ENTITLED TO SUBSTANTIAL RELIEF ON INCOME TAX ON ARREARS OF ENHANCED PENSION AND  OROP RECEIVED DURING THE F.Y 2015-16

(INCOME TAX ACT 1961 SECTION 89 (1))

              THIS POST IS  NOW 100% COMPLETE TO INCL ONLINE SUBMISSION

The subject has been under discussion on social media with varied views for the last few months. Some one has rightly named the same as expanded jargon as if it is  hell of a task to work out the IT Relief.

    Like wise as for other posts on calculation of Arrears of Pension posted here in this web site in the past we have simplified the entire explanation and the methodology to a Primary Class Maths Play. The relief in income tax amounting to about Rs 20  to 40 thousand  is worth the effort on your part to take advantage of this do it your self solution. Hence do get hold of your IT file and the past ITRs of 6th CPC period and follow the simple steps.

   Our team has studied the entire issue in detail and after consultation with classified financial experts have brought this post for your benefit structured specially for Faujis  which can save as much as approx Rs 30000/- of Income Tax during the current Assessment year (2016-17) for an ESM of the rank of Maj and above in most cases.  Tax saved is money earned. The CAs who file your income tax make it so difficult for you so that they can justify their demand of a portion of the relief as their fees..

    Let us briefly look at the provision of  "Relief on IT"  so permitted on arrears under Sec 89(1) of the IT Act.

Section - 89, Income-tax Act, 1961-2014   
B.—Relief for income-tax] 54 [Relief when salary, etc., is paid in arrears.
             Where an assessee is in receipt of  of salary (Pension) for more than twelve months being paid in arrears in any one financial year,  due to which his/her total income is assessed at a rate higher than that at which it would otherwise have been assessed in the past, the Assessing Officer shall, on an application made to him in this regard, grant such relief as may be prescribed. (ABRIDGED).

How It Affects Us The Faujis

    During the FY 2015-16 for which we are to file our ITR now we have received  arrears on  Enhanced Pension  for the period from 01 Jan 06  to 23 Sep 12 amounting to nearly Rs 3 lakh and OROP Arrears 1st Installment of approx Rs 89000 depending upon the Rank and QS of the Officer..
  These arrears of about Rs 4 Lakh, when added to the pension for the year and your other income on interest on investments are likely to take majority of the pensioners to the uppermost slab and taxed at 30%.  The arrears  which otherwise pertain to your entitlements of previous years from FY 2005-06 and later, will be Taxed at higher rate than they would have been taxed in the previous related financial year where the rate could have been 10% or 30% at the maximum..

  SEC 89 (1) of IT Act entitles you to relief in IT as mentioned above by splitting the total arrears year wise to which they actually belong and adding them for taxation to the Taxable Income of that particular previous year.

     The said relief will be to the extent of difference in the total of Past  Income Tax, which one would have paid in case this amount of arrears was received in that particular year as part of the total income of that year compared to the Income Tax which is now calculated for the Fin Year 2015-16 by adding the total arrears received during FY 2015-16 and shown in your Form 16 issued by your pension Bank.

    The term  "TI" (total taxable income) is the final figure of your income after applying all types of deductions on which the Income Tax is finally calculated. The IT Department requires the submission of  Form 10E which is nothing but a calculation sheet to arrive at the total relief in a prescribed format. The same has been explained in lay man's terms and simple to comprehend. in this web post.

     A sample of the same based on an actual example is also up loaded for your ready reference and guidelines to empower you to work on it yourself..

What Details We Need to Do (Data)

We need to look into our past ITRs and note down following on a piece of paper:-

  (a).   Your year wise figures of Taxable Income (TI)   as per your ITRs and the Total Tax paid incl SC and Cess as applicable for the previous FYs  starting from FY- 2005-06  till FY 2014-15.

 (b)   Your figures of  "TI" for FY 2015-16  both Including as well as Exluding  the Arrears   received for OROP  and the Enhanced Pension. and the Income Tax calculated on both these figures as per the rates applicable for AY 2016-17

  (c).   Note down the figures  of Arrears received for Enhanced Pension up to 23 Sep 2016 (Without TDS). These are to be split Past Yr Wise with the help of percentages specified in the Chart showing Breakdown of the Arrears.

  (d)   Note down the figure of the First Installment of OROP Arrears. Add both to get total arrears. The first instalment of the Four in OROP is less than the auth arrears for the FY 2014-15 as such should be incl for FY 2014-15. The Family Pensioner received all the OROP arrears in One Go as such they need to split them for 9 months in FYs 14-15.

   (e)   Check as to when you became a Senior Citizen for Taxation  purposes. untill  FY-2010-11 the age specified for a Sr Ctz was 65 years. and reduced to 60 yrs during the following year.

   (f)   You will need to work out the taxes for all these years by adding the part of arrears applicable for that year to the TI of that year. We have placed the applicable income tax rates at the end of this post,

..                  

 SIMPLE STEPS TO PROCEED

The procedure is being explained  below with the help of an ongoing calculations for the near live Example

FIRST -  The total Arrears received during he FY 2015-16 are to be split in to values related  to the previous Financial Years to which the portion belongs to. This has been termed as an extremely difficult and tedious task, however Signal's Parivaar gives here a Primary School Method.  The breaking down of the arrears specially for the enhanced pension has been simplified as percentages of the total arrears to give you the portion of the arrears for a particular related year. The Table below under Column "3' contains the percentage. Multiply the total arrears with this percentage and you get the portion of the total arrears for the FY to which it belongs under column '1' for the period in months (Column '2'.).

       Note : In order to simplify the issue further the breakdown of arrears for various Ranks with full Pension (QS) have also been given on plate in this chart. SIMPLE ISN'T IT.    .....     "Cheers"

  WE WILL PROCEED WITH THE EXPLANATION WITH AN EXAMPLE BY ASSUMING SOME HYPOTHETICAL FIGURES OF TAXABLE INCOME FOR THE PAST YEARS.

   IMPORTANT  -  (THIS CHART SHOWS THE FIGURES FOR FULL PENSION, FOR THOSE WHO PMR OR HAVE  LESSER QS SHOULD USE THE PERCENTAGES SHOWN UNDER COLOUMN "3" IN THE ABOVE CHART TO SPLIT THE TOTAL ARREARS PAST YEAR WISE)
 

NOTES (STEP - 1) :-  
1.      As you notice above we have taken the arrears accrued from Jan to Mar 2006 for the year 2005-06 above. Many of our readers have opined that we should take only two months i.e Jan and Feb months since the pensions for Mar are only paid in Apr. We have felt otherwise since these are not the payments but accruals for the past Financial Years as such we should follow the norms for a Financial Year counted from Apr to Mar.
2.      We have carried out in house calculations by taking the arrears from Mar to Feb in place of Apr to Mar and find that in the calculations shown later in the post there is slight reduction in the relief amounting to Rs 341 only.
3.      We herewith also place the Breakdown factors for the option two should you like to follow the option by taking accruals of arrears from Apr to Feb in any Financial year 

TABLE FOR OPTION TWO FRO BREAKING DOWN ARREARS

4.    The table above shows the Year Wise  "PERCENTAGE  SPLIT FACTOR"   for the past Financial Years. The Arrears received for the period from 01 Jan 2006 to 23 Sep 2012 be multiplied by this percentage and result will be the Splitted arrears for the Year. Thereafter the methodology is just the same to arrive at FORM 10 E.



SECOND - Work out TAX incl Cess on your taxable income for FY 2015-16  EXCLUDING ARREARS  as per slabs applicable for current AY 2016-17.

       **  Let us assume this figure to be Rs 833523/- .  The Tax works out as Rs 89306/-. (A)
                       
      **  The Arrears on OROP of Rs 89979/-,  and on  Pension   Rs 310402/-  were received during this year.   Total amt of the Arrears therefore is =  Rs 400381/-

       Note :- Please prepare a chart / table of these figures as shown below on paper:-

COMPUTATION OF TAX DUE TO ARREARS DURING FIN YR 2015-16 UNDER STEPS TWO & THREE

THIRD ::  Now work out "Tax incl Cess" on your taxable income for FY 2015-16  INCLUDING TOTAL ARREARS  as per slabs applicable for AY 2016-17.  Note down the difference i.e the increase  in the taxes worked out with and without adding the arrears.
                           
                     ** Total "TI" in this case is =   833523 + 400381 = Rs 1233904/-

                     ** The tax on this amount works out to be = Rs 195876/-.   (B)

                     **  The tax with arrears has thus been increased because of the addition of arrears 
                            amounting to Rs 400381  by an amount as at Ser 6 above = Rs 106570  

                      ** Insert these fiigures in the chart above.

          The applicable IT Rates  for the current AY 2016-17 are as under:-

INCOME TAS RATES & SLABS FOR ASSESSMENT YEAR 2016-17 (CURRENT)

Please note that due tot the addition of total arrears the TAX increases by an amt of 

(Rs 195876 (B) minus Rs 89306 (A)) = Rs 106570/-

FOURTH ::  As next step similarly work out the  year wise TAX as applicable on the Broken down amt of  TIs of previous years (year wise) first without adding the portion of arrears and then by adding the arrears of the particular year, Note the difference ie increase  in the year wise TAX which has increased because of the addition of the elated Arrears in that year i accordance with the the applicable slabs and the rates for that year . These  should  be  put in a chart format as  explained in the succeeding paragraph.

       Note  1-  Income Tax Slabs and Rates -  The previous years  slabs  can be downloaded from Google . However we have for your convenience placed these right here at the end of this web page covering the entire period of 6th CPC.

       Note  2   On Line Tax Calculator . On searching google.com one will be able to find number of on line tax calculators for previous years. Income Tax Dept site  http://incometaxindiaefiling.gov.in/  also has Tax Calculator starting from assessment year 2009-10 on wards which are easy to use. Simply fill in your T.I and your status, you will get the tax payable on this TI.

 FIFTH -     Preparing the Chart and Arriving at the RELIEF. In order to understand this process in simple terms we have taken the above mentioned figures of arrears and hypothetical Total Taxable Incomes of previous years.  These are charted in the following chart. The First installment of the OROP amounting to Rs 89979/- is far below the arrears that accrue for the period  from 01 Jul 2014 to Feb or Mar 2015. We should therefore consider them as the arrears for the FY 2014-15 as in the chart.   The TAX with and without the addition of arrears for the year are also shown so worked out at applicable rates in relevant columns.in the chart below.  One should have no difficulty in understanding the figures in each column and row.

TABLE SHOWING CALCULATIONS OF INCREASE IN TAX IN PAST YEARS DUE TO ADDN OF ARREARS

      NOTE : The assessee became Senior Citizen during the Fin Year 2010-11 as such applicable have been slabs used for calculation of tax from 2010-11 on wards.

         Please note that the total under column (7) above i.e Rs 74288/- is the increase in Taxation because of  the addition of year-wise arrears  from the erstwhile Tax paid.

                     

             MEANING THERE BY THAT "HAD THESE ARREARS BEEN PAID AS PENSION

            DURING THE PARTICULAR PAST YEARS WE WOULD HAVE PAID JUST 

Rs 74288/-  MORE  IN INCOME TAX.

    

SIXTH - Calculation Of Relief - Its simple again .

The arrears amounting to Rs 400381 have been received during the last financial year and are being reflected in the FORM 16 being received by us. This amount of Arrears has increased our Income Tax by Rs 105876/- as worked out above than the tax in case these arrears were not received.

   However in case these arrears were paid in the past the increase in  Tax works to only Rs 74288/- . WHICH IS OUR REAL  LIABILITY. 

    GOOD NEWS IS THAT THE INCOME TAX DEPT UNDER SECTION 89 (1) WILL GIVE YOUR RELIEF IN TAXATION FOR THE AMOUNT OF INCOME TAX BEING WORKED OUT DURING THE CURRENT ASSESSMENT YEAR  IN EXCESS OF Rs 74288/- .

THE RELIEF THUS IS AS UNDER :-

        (a)  Increase of TAX due to addition n of Arrears as at SECOND STEP =  Rs 106570/-

        (b)  Increase of Total Year wise TAX due to Arrears as at FOURTH Step + Rs  74288/-

                RELIEF =  (Rs106570 minus Rs 74288/-) =  Rs 32282/- 

                          ********************

FORM 10 E -Preparation and Submission

While the relief amount is reflected in the appropriate field in the ITR where the amount of relief gets reduced from the total Tax, the pensioners are required to submit FORM 10 E in support of their relief claimed from the arrears. 

 This form is of two pages as shown below. 

      Page one is the summary and verification from the pensioner. 

      Page two is "Annx -1" which contains Particulars and Table A which simply  tabulates the calculations made by you on piece of paper as mentioned earlier.

 On closer look you will notice that the data which you had worked out above and made into manuscript tables is the one which has been used to produce this Fom for Submission. 

    *************************

PAGE - 1

PAGE-2

     SLABS TAKEN--   In the above Form for the years shown are the Financial Years . The subject assessee became senior citizen during the FY 2010-11. as such his calculations from the Fin Year 2010-11 on wards are based on  slabs prescribed  for a Senior Citizen. The calculations thus upto FY 2009-10 are as for a MALE Assessee.

ON LINE UTILITIES -   There are many on line applications available launched by various establishments which file ITRs on behalf of their clients. They are simple to use and need only filling up the arrears spitted as per past years and the applications does all calculations for you and also produces Form 10 E. One can make use of them as well if one can however care should be taken that the calculations are for the age of the assessee. Any mistake if made in the Form the responsibility will be of the assessee and the Income Tax Department may not admit the Relief because of these errors. It will be worthwhile to recheck the outputs by manually calculating as well. 


E-FILING OF ITR AND FORM 10 E

   ITR - First after you have calculated your data you may prepare your ITR for efiling based on On line Forms ITR-1 or as applicable. These forms has a field to insert the Total amount of Relief claimed. This amount gets reduced from the over all tax liability.
    FORM - 10 E - The E-filing site   https://incometaxindiaefiling.gov.in  caters for on line filling of the form and submission. One can prepare the form on line and save it as draft while you are partially ready and finalise later. After you have logged in with your PAN number and password to your account with them Click on "e-File"   (Refer to following screen shot) select prepare and submit Form on line from drop down, the scene as below will appear. Put in details and continue thereafter as per instructions which pop out,

              NOTE:-   Once again its a simple affair, the form can be prepared and submitted on line. However please note that the years as they appear there on line  are assessment years. The data as prepared by you is to be entered on line.

NOTE - We will appreciate your inputs in the above issues.



INCOME TAX SLABS
FOR THE PREVIOUS YEARS (6TH CPC) FOR REFERENCE.

  NOTE :  The Years show here are Financial Years in these tables. .

INCOME TAX SLABS 2005 TO 2009 (Sr Ctz Age >65 Yrs)

INCOME TAX SLABS FOR YEAR 2009 TO 2013 (Sr Ctz >65 yrs till FY 2010-11)

          Note : The age for a Senior Citizen was reduced to 60 Years wef  FY 2011-12

INCOME TAX SLABS FOR THE YEARS 2013 TO 2016 (Sr Ctz Age >60 Yrs)

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