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It - Rebates and Reliefs

1. The document discusses various rebates and reliefs available under the Indian Income Tax Act, including rebates for securities transaction tax paid (Section 88E) and relief for income already taxed at the AOP/BOI level (Section 86). 2. It provides details on computing relief when salary is received in arrears/advance or over more than 12 months (Section 89), including aggregating the tax difference across relevant years. 3. Relief computation procedures are outlined for various payments like gratuity, compensation, commutation of pension, and other payments. Form 10E must be filed to claim relief from employer.

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Jitendra Vernekar
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1K views

It - Rebates and Reliefs

1. The document discusses various rebates and reliefs available under the Indian Income Tax Act, including rebates for securities transaction tax paid (Section 88E) and relief for income already taxed at the AOP/BOI level (Section 86). 2. It provides details on computing relief when salary is received in arrears/advance or over more than 12 months (Section 89), including aggregating the tax difference across relevant years. 3. Relief computation procedures are outlined for various payments like gratuity, compensation, commutation of pension, and other payments. Form 10E must be filed to claim relief from employer.

Uploaded by

Jitendra Vernekar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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REBATES AND RELIEFS OF INCOME-TAX

Rebate to be allowed in computing income-tax [Section 87]:


In case of certain assessees, while computing the amount of income-tax on
total income, deduction under section 88 E shall be allowed from the income-tax so
computed before allowing the deductions under this chapter. However, such
deductions under section 88 E shall not, in any case exceed the amount of tax
computed on Total Income before allowing such deduction.
Rebate in respect of securities transaction tax [Section 88E]:
Rebate under section 88 E is applicable from the assessment year 2005-06.
The following conditions should be satisfied
1) The taxpayer is an individual, HUF, firm or any other person.
2) His income includes any income chargeable under the head Profits and
gains of business or profession arising from taxable securities
transactions.
3) The assessee furnishes along with the return of income evidence of
payment of securities transaction tax in Form No.10DB (in the case of
transaction in stock exchange) and Form No.10DC (in case of transfer of
units of Mutual Fund).
Where total income of an assessee in a previous year includes any income,
chargeable under the head Profits and gains of business or profession, arising from
taxable securities transactions, he shall be entitled to a deduction, from the amount of
income-tax on such income arising from such transactions, to the extent of the
minimum of the following two amounts
(1)
(2)

securities transaction tax paid by the assessee in respect of taxable


securities transaction entered into in the course of his business
during that previous year;
Average rate of income-tax x business income from such taxable
securities transactions
Average rate of Income-tax =

Total tax x 100


Total income

The rebate under section 88E shall be allowed even though the income from taxable
securities transaction is of speculative nature.

-2Relief of income-tax [Sections 86, 110 and 89(1)]:


(a) Relief in respect of share of profit from an association of persons or body
of individuals [Section 86]:
Where the association of persons or body of individuals is chargeable
to tax at the normal rates of tax applicable to individuals, then the share of a
member of such AOP/BOI shall be included in the taxable income of the
member, such member shall, however, be entitled to a relief in his Total
Income but on which tax has already been paid by the AOP/BOI. As per
section 110, the relief shall be allowed at the average rate of tax calculated on
the total income inclusive of such income.
Relief under section 86 shall not be applicable:
(i)
(ii)

Where the AOP or BOI is chargeable to tax on its total income


at the maximum marginal rate or any higher rate under any
provisions of the Income-tax Act.
Where no income-tax is chargeable on the total income of the
AOP or BOI as in that case, the share of a member computed
shall be chargeable to tax as part of his total income.

(b) Relief when salary, etc., is paid as arrears or in advance or payment in


lump sum [Section 89(1)]:
Where an assessee is in receipt of salary for more than 12 months during any
financial year or any payment which is a profit in lieu of salary or is in receipt
of arrears of family pension, his income will be assessed at a rate higher than
that at which it would otherwise have been assessed. In such case, the
assessee is provided relief under section 89(1). The procedure for computing
the relief is given in rule 21A.
Relief is provided in the following cases:
(i)
(ii)
(iii)
(iv)
(v)
(vi)

salary received in advance or in arrears;


arrears of family pension;
gratuity;
compensation on termination of employment;
commutation of pension;
other payments.

Relief under section 89:


If an individual receives any portion of his salary in arrears or in advance or
receives profit in lieu of salary, he can claim relief in terms of section 89 read with
rule 21A:

-3Relief when salary is paid in arrears or in advance, etc. [Section 81(1)/Rule 21A]:
Where, by reason of any portion of an assessees salary being paid in arrears
or in advance or by reason of his having received in any one financial year salary for
more than twelve months or a payment which under the provisions of section 17(3) is
a profit in lieu of salary, his income is assessed at a rate higher than at which it would
otherwise have been assessed, the relief to be granted under section 89(1) shall be as
under:
Computation of relief when salary has been received in arrears or in advance
[Rule 21A(2)]:
The relief on salary received in arrears or in advance (hereinafter to be
referred as additional salary) is computed in the manner laid down in rule 21A(2) as
under:
1) Calculate the tax payable of the previous year in which the arrears/advance salary
is received on:
(a) Total Income inclusive of additional salary.
(b) Total Income exclusive of additional salary.
The difference between (a) and (b) is the tax on additional salary included in
the total income.
2) Calculate the tax payable of every previous year to which the additional salary
relates:
(a) on total income including additional salary of that particular previous
year.
(b) on total income excluding additional salary.
Calculate the difference between (a) and (b) for every previous year to which
the additional salary relates and aggregates the same.
3) The excess between the tax on additional salary as calculated under step 1 and
step 2 shall be the relief admissible under section 89(1). If there is no excess, no
relief is admissible. If the tax calculated in step 1 is less than tax calculated in
step 2, the assessee need not apply for relief.
Computation of relief in respect of gratuity other than gratuity exempt under
section 10(10) [Rule 21A(3)]:
Under section 89, a relief can be claimed if gratuity is received in excess of the
limits specified. However, no relief is admissible if taxable gratuity is in respect of
services rendered for less than five years. Cases in which the relief is admissible may
be divided into two categories:

-4(a) Where the gratuity payable is in respect of past service of 15 years or more:
Step: 1 : Calculate the tax on total income (including gratuity) I the year of receipt of
gratuity and calculate the average rate of tax, i.e.,
Total tax
x 100
Total income
Step: 2 : Calculate the tax on gratuity on basis of average rate of tax computed in
Step 1.
Step: 3 : Calculate the tax liability by adding 1/3 of the gratuity to the total income of
each of the preceding three years and calculate the average rate of tax for
each year separately.
Step: 4 : Calculate the average of the three average rates computed in the manner
specified in Step 3 above and compute tax on gratuity at that average rate.
Step: 5 : The excess, if any, of the tax on gratuity computed at Step 4 will be the relief
admissible under section 89(1).
(b) Where gratuity is paid in respect of past services of 5 years or more but less
than 15 years:
The procedure for computation of relief is the same except that in Step 3 the
number of years for calculating average rate of tax shall be taken as 2 years
instead of 3 years and thus of the gratuity will beaded in the total income of
the preceding 2 years instead of 3 years.
Computation of relief in respect of compensation on termination of employment
[Rule 21A(4)]:
Relief will be available only if the following conditions are satisfied:
(a) Compensation is received after continuous service of not less than 3 years.
(b) The unexpired portion of the term of employment is also not less than 3 years.
The procedure for calculating the relief is the same as in the case of gratuity paid
to the employee in respect of services rendered for a period of 15 years or more.
Computation of relief in respect of payment in commutation of pension
21A(5)]:

[Rule

A relief can be claimed in respect of payment in commutation of pension


received in excess of the limits prescribed. Such relief is computed in the same
manner as if the gratuity was paid to the employee in respect of service rendered for a
period of 15 years or more.

-5Computation of relief in respect of other payments [Rule 21A(6)]:


Where the payment is of a nature other than given under Rule 21A(2) to
21A(5), the relief under section 89 will be granted by the CBDT, having regard to the
circumstances of each case.
Furnishing of particulars for claiming relief under section 89(1) [Rule 21AA]:
Where the assessee, being a Government servant or an employee in a
company, co-operative society, local authority, university, institution, association or
body, is entitled to relief under section 89(1), he may furnish to the person responsible
for making the payment referred to in section 192(1) the particulars specified in Form
No.10E.
In case of other employees, the application for the grant of relief shall have to
be made to the Assessing Officer, instead of the employer.
The Assessing Officer should ask for a true and authentic statement of the total
income of the earlier years to which the arrears pertain. There is, therefore, no
warrant for issuing a notice under section 148 or calling for returns of income of
earlier years.

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