What is the tax treatment for salary given in arrears, or in advance? How does the I-T Act protect my interest in this case?

What is the tax treatment for salary given in arrears, or in advance? How does the I-T Act protect my interest in this case?

You have to calculate your tax liability on the total income received during the current financial year. If your total income includes any past dues paid in the current year, or any advance for the succeeding years, you may be worried about paying a higher tax on such arrears/advance. To protect you from paying a higher tax rate in this case, relief is provided under section 89(1) of the I-T Act. If you have received any portion of your salary in arrears or in advance, or if you have received family pension in arrears, then you are allowed some tax relief under this section along with Rule 21A. However, this relief is available only in respect of income from Salary and income from other sources (family pension). It is not available when the taxpayer avails exemption from tax in respect of VRS compensation.


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