Section 89(1) Relief with a sample calculation

What is Section 89(1) Relief :

If an income tax payer receives income which belongs to a past or future financial year, and if considering it in that year will result in lower income tax, he can claim the difference in income tax as section 89(1) relief.

How it is implemented in SAP:

In SAP, Sec.89(1) relief can be implemented in following ways:

1) By maintaining following switches in V_T511K table at implementation level (for all the employees):

SECTION  89 SWITCH – S89SW

SECTION 89 NEGATIVE RELIEF – S89TX

2) By using SECTION 89 ELIGIBILITY (INFOTYPE 588 – SUBTYPE 4) – This is for specific employees, for whom you want to compute Sec.89(1) relief.

Various Methods of computation:

1) Automatic computation of Sec.89(1) relief – in case of sap live data is available from the past years on which, you want to calculate the relief.(PCR’s IN42 & IN43 will calculate the difference in salary using DT table and the following wage types will be created:

/616 – Add. Gross Salary

/622 – CF Empmnt tax (Prof.tax)

/6I2- CF Sec.88 investment

/650 – Add Tax payable & surcharge

(Above wage types will be populated with appropriate values in a FOR-YEAR IN-YEAR combination in table S89)

2) External Data for Sec.89(1) Relief:

When no live SAP data is available in the past years, we can copy the following wage types from corresponding mode wage type and enter in Infotype 15 with appropriate past date, so that system will generate the 4 wage types mentioned in step-1.

M89G – S89:AddGrSal Legacy /616

M89P – S89:AddPTax Legacy /622

M89I –  S89:AddS88Inv Legacy /6I2

M89T-  S89:AddTaxLegacy /650

3) Sec.89(1) relief Computed outside SAP Payroll:

We can also calculate the Sec.89(1) relief manually and insert in Infotype 15 by using a wage type copied from the following model wage type:

M89R – S89 Relief entered as WT

You can refer the SAP documentation for the details of calculation, PCR’s etc.

Now I want to explain a sample scenario of automatic computation of Sec.89(1) relief:

Some arrear amount belongs to financial year 2012-13 is paid in FY-2013-14 (may be because of salary increase or reversal of unpaid absence belongs to previous financial year). Considering the less taxable income in FY 2012-13, if we want to calculate sec.89(1) relief for this arrear amount through cross-financial retro in 2013-14, the system will form the table S89 with following wage type values:

The Sec.89(1) relief will be calculated using the values given in the following four tables:

Calculation of Sec.89(1) Relief :

Tax with arrear (for current year – FY-2013-14) =1,68,363.00 (A)

Tax without arrear (for current year 2013-14)  = 1,55,675.00  (B)

Delta Tax for current year = (A) – (B) = 12,688.00

Tax with arrear (for prev.year – FY-2012-13) = 92,041.00  (C)

Tax without arrear (for prev.year -2012-13)  = 83,582.00  (D)

Delta Tax for prev.year (s) = (C) – (D) = 8459.00

Total Relief u/s sec.89(1) = Delta Tax for current year –

                                             Delta Tax for prev.year(s)

                                         = [(A)-(B) ] – [(C)-(D)]

                                         = 12,688.00 – 8459.00

                                          = 4229.00