Section 89

Section 89 — the law in short

What the courts have decided on section 89, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Hosur Bata Employees Union v Principal Chief Commissioner of Income Tax High CourtCuts both waysNo later treatment found
  My clients settled a wage dispute and took VRS and compensation for loss of future salary in two instalments. The company deducted TDS on the whole amount without giving s.89 relief. Can we make the employer refund it?
  No — not from the employer. The Madras High Court held that the employer cannot be found at fault for deducting tax at source in the absence of an application in Form 10E under Rule 21A, because s.192(2A) is what obliges the employer to compute and give s.89 relief and it operates only on the particulars the employee furnishes. The Court's remedy was to direct the employees to file returns under s.139(1) within thirty days and the Income Tax Officer to process them under s.143(1) and refund within two months.
• Nikita Rameshchandra Shankarwala v ITO ITATHelps taxpayer
  CPC disallowed my client's s.89 relief on arrears of salary because Form 10E had not been filed when the return was processed. He filed it later. Is the relief gone?
  No. Filing Form No. 10E is a procedural requirement, and the Tribunal directed the Assessing Officer to accept a Form 10E filed after the s.143(1) intimation and to grant the relief after verification. The Indore Bench reasoning it follows is that where a prescribed form goes to a relief or exemption, courts hold the requirement procedural and allow the substantive benefit even on a belated form, absent mala fides.
• Suresh Pal Chauhan v ITO ITATHelps taxpayer
  My client took the package when HMT's Tractor Division was closed. CPC allowed only Rs 5 lakh under s.10(10C) and then refused s.89 relief because of it. Is the whole package exempt?
  On these facts yes. Where the Central Government approves a scheme for extending special protection to workmen of an undertaking being closed down, the second proviso to s.10(10B) displaces the monetary ceiling and the whole of the compensation is exempt. The Chandigarh Bench held the HMT Tractor Division package fell under s.10(10B) and not s.10(10C), and separately directed that s.89 relief be allowed on the net gratuity.
• Statutory position — s.17(3): what "profits in lieu of salary" includes, the exemption receipts it carves out, and the limb that catches money paid before employment begins or after it ends CBDT Circulars & InstructionsCuts both ways
  My client received a payment from a former employer that is not gratuity, not retrenchment compensation and not under any VRS. The Assessing Officer says it is profits in lieu of salary. What exactly does s.17(3) cover, and what does it not?
  Section 17(3) has three limbs. Clause (i) covers the amount of any compensation due to or received from an employer or former employer at or in connection with the termination of employment or the modification of its terms and conditions. Clause (ii) covers any payment due to or received from an employer, a former employer or a provident or other fund, but expressly excludes any payment referred to in clause (10), (10A), (10B), (11), (12), (13) or (13A) of section 10, and excludes so much of the payment as consists of the employee's own contributions or interest on them or any sum received under a Keyman insurance policy including bonus allocated on it. Clause (iii) covers any amount due to or received, whether in lump sum or otherwise, by any assessee from any person before his joining any employment with that person or after cessation of his employment with that person.
• Statutory position — s.192: the employer deducts at the average rate on his own estimate of the year's salary, and the declarations exist to correct the estimate CBDT Circulars & InstructionsCuts both ways
  I run payroll. Section 192 has no threshold and no percentage in it like every other TDS section does — so how much am I supposed to deduct, and which of my employee's declarations am I actually obliged to act on?
  Section 192 does not work like the rest of Chapter XVII-B: there is no threshold below which you need not deduct and no flat percentage to apply. You deduct, at the time of payment, "at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year" — that is, you build the employee's whole year's salary, work out the tax on it at the slab rates, divide that tax by that salary, and apply the resulting rate to each payment. Everything else in the section exists to make that estimate accurate: sub-section (2) lets the employee bring in salary from another employer in Form 12B, (2A) lets him bring in relief under section 89 in Form 10E, (2B) lets him bring in other income, other tax deducted or collected and a house property loss in Form 12BAA, (2D) obliges you to collect evidence of his claims in Form 12BB, and (2C) obliges you to give him back a statement of his perquisites in Form 12BA. Sub-sections (1A) and (1B) let you choose to pay the tax on a non-monetary perquisite yourself instead of deducting it, and section 115BAC(1A) is the default regime from assessment year 2024-25, so your estimate is made under it unless the employee tells you otherwise. This is the section as it stood after Act No. 15 of 2024 with effect from 1 October 2024; it governs salary paid up to 31 March 2026, after which section 392 of the Income-tax Act, 2025 takes over.
• 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 waysNo later treatment found
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.