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Case lawCBDT Circulars & Instructions › Statutory position — s.89 with Rule 21A and Rule 21AA: the five categories of relief on arrears, the proviso that forfeits relief where the s.10(10C) exemption has been claimed, and what Rule 21AA actually says about Form 10E
CBDT Circulars & InstructionsCuts both waysValidity unconfirmeds.89Rule 21ARule 21AAForm 10Es.17(3)s.57(iia)s.10(10C)s.10(10C)(i)s.192s.192(1)s.192(2A)

Statutory position — s.89 with Rule 21A and Rule 21AA: the five categories of relief on arrears, the proviso that forfeits relief where the s.10(10C) exemption has been claimed, and what Rule 21AA actually says about Form 10E

My client received salary arrears and family pension arrears in one year and has been pushed into a higher slab. What relief is available, how is it computed, and is Form 10E a precondition?

My client received salary arrears and family pension arrears in one year and has been pushed into a higher slab. What relief is available, how is it computed, and is Form 10E a precondition?

Section 89 gives relief where an assessee receives a sum in the nature of salary paid in arrears or in advance, or salary for more than twelve months in one financial year, or a payment which under s.17(3) is a profit in lieu of salary, or a sum in the nature of family pension as defined in the Explanation to s.57(iia) paid in arrears, and his total income is on that account assessed at a higher rate; the Assessing Officer must, on an application, grant such relief as may be prescribed. Rule 21A prescribes five different computations depending on which of five categories the payment falls into. On Form 10E, be precise: Rule 21AA says that an assessee entitled to relief under section 89 "may furnish to the person responsible for making the payment referred to in sub-section (1) of section 192" the particulars specified in Form No. 10E — it is expressed as a permission, and it is directed at the employer for the purposes of tax deduction, not in terms as a condition precedent to the relief.

Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2010-04-01, reported as Income-tax Act, 1961, s.89, as printed on the departmental Year 2013 page with its footnotes, the main body corroborated on the Year 2005 page; Income-tax Rules, 1962, rules 21A and 21AA, as printed on the departmental rule pages (no Year stamp). It bears on section 89, section Rule 21A, section Rule 21AA, section Form 10E, section 17(3), section 57(iia), section 10(10C), section 10(10C)(i), section 192, section 192(1), section 192(2A) of the Income Tax Act 1961, in Salary & Perquisites, TDS Defaults and How Tax Law Is Read matters.

Validity check could not be completed. Validity check could not be completed, and for a specific reason. The newest departmental edition of section 89 I could locate is stamped Year 2013; eight suffixes were probed and every other one returned an older edition, so I cannot show from a source read this pass that the section stands today exactly as the Year 2013 page prints it. What supports it is that the Year 2005 page prints the same main body word for word without the proviso, which corroborates both the body and the Year 2013 page's own footnote dating the proviso to the Finance (No. 2) Act 2009 with effect from 1 April 2010. Rules 21A and 21AA carry no Year stamp at all, so neither has been dated beyond the footnotes actually printed on the rule 21AA page. I did not carry out any check of judicial treatment of section 89 or of either rule, and I did not establish any requirement that Form 10E be filed before the return.

Why it matters

Two things in this section are regularly got wrong. The first is the proviso. Relief under section 89 is NOT available in respect of any amount received or receivable on voluntary retirement or termination of service under a voluntary retirement scheme, or a scheme of voluntary separation in the case of a public sector company referred to in s.10(10C)(i), if an exemption in respect of that amount has been claimed under s.10(10C) in that or any other assessment year. The departmental page dates that proviso to the Finance (No. 2) Act 2009 with effect from 1 April 2010. It is the mirror image of the third proviso to s.10(10C), which this library already carries, and the two together mean the exemption and the relief are alternatives: a return that claims both is wrong on its face, and it is one of the easiest errors for the processing system to catch. The second is Rule 21A's five-way split, which practitioners collapse into a single spreadsheet. Sub-rule (1) directs the computation to sub-rule (2) for salary or family pension in arrears or in advance; to sub-rule (3) for gratuity in respect of past services extending over not less than five years; to sub-rule (4) for compensation from an employer or former employer at or in connection with the termination of employment after continuous service of not less than three years where the unexpired portion of the term is also not less than three years; to sub-rule (5) for a payment in commutation of pension; and to sub-rule (6) for anything else. Two of those gateways carry service thresholds — five years for gratuity and the double three-year test for termination compensation — and a claim under the wrong sub-rule is a claim under the wrong computation. On Form 10E, be careful about what you tell a client. Section 192(2A) and Rule 21AA are the machinery by which an employee gets the relief built into his TDS; the words of Rule 21AA are permissive and address a furnishing to the employer. Section 192(2A) is the statutory parent of Rule 21AA and is in the same terms — permissive, addressed to the employer, and operating so that the employer takes the relief into account in deducting under section 192(1). So no instrument in this chain makes Form 10E a condition precedent to the relief. What section 89 does require is a claim: the relief is granted only "on an application made to him in this behalf". Where a return-stage Form 10E requirement bites, it bites through the processing of the return under section 143(1), not through Rule 21AA — and that is the ground on which the decisions this library already holds (Hosur Bata Employees Union v PCCIT, Nikita Rameshchandra Shankarwala v ITO, Vaishali Baban Bhosale v ITO) were fought and won.

Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.

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