How should I handle the taxation of a lump sum payment received, including advance salary, commuted pension, arrears of salary, gratuity, leave encashment, or family pension that was due in previous years?

February 20, 2024 13:21

Section 89(1) of the Income Tax Act provides relief to taxpayers who received lump sum payments, like arrears of salary. This provision ensures that the total tax on such income doesn't surpass what would have been payable if the income had been received regularly.

Taxpayers can claim this relief by recalculating the tax for the year in which the arrears are received as well as for the year to which the arrears pertain. It's crucial to file Form 10E before submitting the income tax return to avail of this relief.

Notably, this relief doesn't apply to Voluntary Retirement Scheme (VRS) compensation, but it does cover income from salaries and other sources like family pension.

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