Skip to main content

Tax Planning: Claim tax relief for arrears or advance salaries

 
   ANY income due or received by an employee from his employer or former employer is taxable under the head 'salaries' as per the provisions of the Income Tax Act, 1961. It is pertinent to note that the salary earned in respect of a particular financial year is subject to tax as per the tax rates applicable for that financial year.


   There are occasions when an employee may receive income in a particular financial year, which relates to earlier financial years i.e., as arrears of salary or he may receive certain payments in advance for future financial years i.e., as advance salary.


   In such an event, it is possible that if the entire income is added to the salary income of that financial year, then the tax payer may have to pay tax at a higher rate depending on the slab rates under which his income is otherwise taxable.


   In such a case, there is a relief provided under the Act to ensure that the employee is not worse off.

Arrears/Advance Salary

Where a tax payer receives a sum in the nature of salary being paid in arrears or in advance or receives in any financial year salary for more than twelve months or receives profits in lieu of salary or family pension paid in arrears due to which his total income is taxable at a rate more than the rate at which it would otherwise had been taxable then he may claim relief in respect of tax rates. Besides, certain other receipts like gratuity received for past services, compensation received from the employer or former employer on termination of the employment, payment received in commutation of pension, etc are also eligible for the purposes of said relief, subject to certain conditions. The said relief is to be claimed in the financial year in which the extra payment by way of arrears, advance is taxed. Broadly, the relief under these provisions is arithmetic in nature, as it involves finding out two rates of taxes. The first is the rate of tax applicable to the total income including the extra amount in the year of receipt. Second is finding out the rate by adding the arrears to the total income of the year to which they relate.

Exceptions To Tax Relief

There has been a difference of view whether relief under this provision could be claimed; when the tax payer has also claimed benefit / exemption under some other provision under the Act. It has now been specified that no such relief can be availed in respect of the amount received by the tax payer on his voluntary retirement or termination of service if an exemption in respect of the same has been claimed otherwise by the tax payer under some other provision.

Furnishing Of Particulars For Claiming The Relief

The tax payer is required to furnish the particulars in respect of the above relief to his employer in the specified form so that the same could be considered in respect of his tax calculations.


   This is a beneficial provision in case of payments received by an employee from his employer/former employer for more than one financial year especially when due to these additions, the tax payer's slab rate moves upward or when there is a variation in tax rates in different financial years. Therefore, when salary/other specified payments are received in arrears or in advance, the benefit could be availed of by the tax payer by paying due attention to the relief provisions as specified above.

 

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now