ITR Filing 2024: How can you get relief under Section 89(1) for arrear money? A step-by-step guide
tax bracket. In addition to pay, arrears may involve other sources of income.
A comprehensive list of what qualifies as arrears for tax purposes is provided below:Your total revenue will rise if you receive a significant amount of arrears this year. You may be placed in a higher tax bracket as a result of this than you otherwise would have been.
Consequently, a larger portion of your income is subject to a higher tax rate, increasing your overall tax obligation.
Also Read: Income Tax: Make note of these 5 key points if you are a salaried taxpayerThe important thing to remember is that even if these payments relate to money you were supposed to receive earlier, the tax authorities will count them as income for the year in which they are received. You might end up in a higher tax bracket this year as a result of this.Here’s why receiving arrears or additional payments can increase your tax liability:Tax is calculated on total income: Income tax is determined based on your total taxable income for the year.Arrears are added to current income: Received arrears are applied to current year earnings.Tax brackets have thresholds: Tax brackets define income ranges with different tax rates.
As your income increases, you may move into a higher tax bracket, resulting in a higher tax rate on the additional income.
Also Read: Income Tax: Filing ITR early this time? It is vital to know these 5 key pointsFor Indian taxpayers who receive wage arrears, Section 89(1) of the Income Tax Act, 1961, is a key clause. It talks about the potential for your tax burden to go up if you fall behind on your payments and have to make additional payments.This is the relief provided by Section 89(1):Recalculates tax for both years: The tax is recalculated
