Section 89 - How to Claim Tax Relief on Salary Arrears

Have you ever received a lump sum salary from previous years and then got hit with a big tax bill? If so, don’t worry, you are not alone! Thankfully, Section 89 of Income Tax Act can help you by offering tax relief on salary arrears. This helps you avoid paying excessive taxes due to delayed salary payments. To claim this relief, you need to file Form 10E, which allows the tax burden to be distributed across the years when the income was actually earned. Still confused? This blog will break it all down in the simplest way possible!

11,742 Views | Updated on: May 29, 2025

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What is Section 89 of Income Tax Act?

Under Section 89 of Income Tax Act 1961, you can claim tax relief if you receive salary arrears, advance salary, or family pension in a lump sum. This helps ensure you do not pay extra tax just because the payment was delayed or received in advance. The relief adjusts your tax liability so that you are not pushed into a higher tax bracket unfairly.

To claim this benefit, you need to submit Form 10E on the e-filing portal before filing your Income Tax Return (ITR). All salaried individuals and pensioners eligible for such payments can apply. Since tax rules may change, it is always best to check official guidelines or consult a tax expert for clarity.

What is the Relief Offered Under Section 89(1)?

The relief provided under Section 89(1) of the ITA (Income Tax Act) 1961 ensures that taxpayers are not taxed unfairly on income that they have already earned but have only received in a later year.

Your increased income could be received in the form of:

Salary arrears
Advance salary
Arrears of family pension

The amount is taxable in the financial year it is received. However, Section 89(1) offers you the benefit of reducing your tax burden as per your salary arrears by following certain steps and fulfilling specific formalities.

Claiming Relief Under Section 89

To claim tax relief under Section 89, you must file Form 10E with the Income Tax Department. This form is available on the website of Income Tax e-filing. Forms can be filed online or offline.

The following information must be submitted in Form 10E:

Your PAN number
The amount of salary arrears or other income received in arrears
The year in which the salary arrears or other income was received
The year to which the salary arrears or other income pertains
The amount of tax paid on the salary arrears or other income in the year it was received.

How to Calculate Relief Under Section 89(1) on Salary Arrears?

Calculating rebate under Section 89 on salary arrears has become easy with technological developments in the finance sector. It can be calculated using the following steps:

Step 1: Ascertain your tax payable on the total income, including the additional salary, arrears, or compensations, specifically in the financial year it is received.

Step 2: Calculate the tax payable on your total income, apart from all the additional money, in the year it is received. Now, subtract the arrears from the salary figure received (comprising the arrears). The total salary, in this case, is mentioned in your Form 16. Once you know the sum after arrears, you have to calculate the tax on the same.

Step 3: Subtract the tax amount calculated in Step 2 from the tax amount in Step 1.

Step 4: Calculate the tax on the total income of the year to which the arrears relate. Do not include the amount of arrears in income.

Step 5: Now, add the arrears to the income of that past year and compute the tax liability.

Step 6: Ascertain the difference between the figures of Step 4 and Step 5.

Step 7: Tax rebate under Section 89(1) is the excess sum in Step 3 over Step 6. In case the amount of Step 6 is more than Step 3, no relief is offered.

How Does Section 89 Work?

Getting salary arrears or advance payments can push you into a higher tax bracket, increasing your tax burden for that year. Section 89 of Income Tax Act helps you by spreading this extra income across the years it belongs to.

Here is how it works: Instead of taxing the entire arrears or advance salary in the year you receive it, tax calculations are adjusted as if the income was earned in the original years. This way, your total tax liability is recalculated to see if you are paying extra due to the lump sum payment.

Once the tax difference is determined, the extra amount you would have paid can be claimed as Section 89 relief. But to claim this, you should:

Report the details of this tax calculation while filing your ITR for the year you received the arrears.
Submit Form 10E online on the Income Tax Department’s portal before filing your ITR.

Why is Section 89(1) Important for Tax-savings?

Section 89(1) of the Income Tax Act helps taxpayers avoid paying extra tax when they receive salary arrears or advance payments. Since tax is calculated based on your yearly income, a sudden lump sum amount can push you into a higher tax bracket, leading to higher tax payments.

Why does it matter?

Lower Tax Burden: Instead of taxing the entire arrear amount in the year of receipt, Section 89(1) spreads it across the relevant years. This helps to prevent unnecessary tax hikes.
Fair Taxation: You should not have to pay extra salary arrears income tax just because your employer delayed your salary or bonuses. Section 89(1) ensures you are taxed based on when the income was actually earned, making the system fairer.

Simply put, Section 89(1) ensures that you do not pay more tax than necessary just because of delayed payments. It is a handy provision that keeps things fair and saves you money!

Conditions for Relief Under Section 89

To claim rebate under Section 89, you need to meet a few key conditions:

Income Timing: The salary arrears or advance must relate to a previous financial year, not the current one.
Tax Slab Impact: The additional income should push you into a higher tax slab for the year you received it.
Employment Status: You must have been employed and taxable in India during the relevant years.
Proper Documentation: You must file Form 10E online before submitting your Income Tax Return (ITR).
Valid Income Type: The relief applies to salary arrears, advance salary, gratuity, pension, or compensation for employment-related payments.

Meeting these conditions makes sure that you get the right tax relief without paying extra due to delayed payments!

Features of Form 10E

Form 10E is a digital form that can be found on the e-portal of the Income Tax Department. It is used to provide details about the total income of an employee and any arrears that they have received. Features of Form 10E are:

E-portal of the Income Tax Department makes it simple and entirely digital to submit form 10E. Simply go to the portal, log in to your account, or if you are a new user, create an account.
You must choose and complete the appropriate annexure out of the following:

Annexure I- for the arrear amount

Annexure II- for the gratuity

Annexure III- for the compensation received upon termination of employment.

Once Form 10E is filed, the Income Tax Department will recalculate the tax liability of the employee and adjust the tax accordingly.

How to File Form 10E?

Filing Form 10E is not as tough as it may seem. With the emergence of online services, it has become extremely convenient to fill out these forms. Here are the steps to file Form 10E:

You will first need to log in to the e-filing portal using your user ID and password. Once you are logged in, you will see a dashboard. On the dashboard, click on “e-File” and then “Income Tax Forms”. From there, select “File Income Tax Forms”.
On the “File Income Tax Forms” page, select Form 10E, or you can also enter “Form 10E” in the search box to find the form. Once you have found the form, select the assessment year (AY) and click on “Continue.”
Click on “Let us Get Started” on the instructions page. This will take you to the form. You will need to fill out the required sections of the form. Once you have filled out all of the sections, click on “Preview”.
On the “Preview” page, you will see a summary of the information you have entered. If you are satisfied with the information, you can click on “Proceed to e-Verify”. This will take you to the e-Verification page.
On the e-Verification page, you will need to verify your identity using your Aadhaar number or your PAN number and your password. Once you have successfully affirmed your identity, you will be taken to a submission page.
On the submission page, you will see a Transaction ID and an acknowledgment receipt number. Please keep note of these numbers for future reference. An email confirming the submission of your form will also be sent to the mobile number and email address registered with the e-filing portal.

Important Things to Remember When Claiming Tax Relief on Salary Arrears

When claiming relief on arrears, there are several important things to remember. Here are some key pointers to consider:

When claiming tax relief under Section 89(1), keep your salary slips handy since they serve as proof of receipt of arrears.
It is mandatory for all taxpayers claiming benefits under Section 89(1) to fill and file Form 10E online. In the case of non-filing of Form 10E, the taxpayer will be issued a notice from the Income Tax Department, and the return will not be processed.
From 10E must be filed and submitted before the filing of ITR (Income Tax Returns). For the assessment year in case of arrears, the year in which the arrears are received is considered. For example, if the arrears were received in FY 2024-2025, the assessment year would be AY 2025-2026.
Arrears are usually announced from a back date; thus, they cannot be taxed when due.
It is not necessary to submit Form 10E in the ITR. However, it is essential to keep a record of all documents.
The employer may ask for a confirmation of Form 10E submission. It is not mandatory to submit the form to the employer.

Salary in arrears can result in higher taxes than the actual tax liability. Being cautious and claiming tax relief correctly can help save tax on salary arrears.

Conclusion

Claiming Section 89 relief can significantly reduce the tax burden on salary arrears and delayed payments. By understanding the features of Form 10E, calculating tax relief accurately, remembering important points, and filing the form on time, taxpayers can ensure a smooth and compliant process. You should stay informed, follow the guidelines provided by the Income Tax Department, and consult professionals whenever necessary to make the most of the relief provisions.

FAQs on Section 89 of the Income Tax Act

1

I have to pay the additional tax due to last year’s salary arrears. What can I do?

You can claim rebate under Section 89 of Income Tax Act. This relief will reduce the tax you have to pay on the salary arrears. You can file Form 10E to claim this relief.

2

Can I claim relief for an arrear of the past years if it is not mentioned in Form 16?

Yes, you can claim relief for an arrear of the past years, even if it is not mentioned in Form 16. You will need to provide supporting documents to prove that you received the arrears.

3

Can I claim relief for HRA arrears under Section 89?

You can claim relief for HRA arrears under Section 80GG. Since HRA arrears are not considered salary arrears, you cannot claim relief for HRA arrears under Section 89.

4

What is Form 10E & where can I file it?

Form 10E is a form that you can use to claim rebate under Section 89 of Income Tax Act. You can file Form 10E online or offline. You can find this form on the website of the Income Tax Department.

5

Which assessment year should I choose while filing Form 10E?

You should choose the assessment year in which you received the salary arrears. For example, if you received salary arrears in 2022, you should choose the assessment year 2022-2023.

6

Do I need to attach a copy of Form 10E with my tax return?

Yes, you need to attach a copy of Form 10E with your tax return. You can attach a scanned copy of Form 10E to your e-filing.

Suggested Readings

1. Types of Income Tax Return (ITR) Forms

2.What is ITR (Income Tax Return)

Written By :

Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Reviewed By :

Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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Section 89 - How to Claim Tax Relief on Salary Arrears

What is Section 89 of Income Tax Act?

What is the Relief Offered Under Section 89(1)?

Claiming Relief Under Section 89

How to Calculate Relief Under Section 89(1) on Salary Arrears?

How Does Section 89 Work?

Why is Section 89(1) Important for Tax-savings?

Conditions for Relief Under Section 89

Features of Form 10E

How to File Form 10E?

Important Things to Remember When Claiming Tax Relief on Salary Arrears

Conclusion

I have to pay the additional tax due to last year’s salary arrears. What can I do?

Can I claim relief for an arrear of the past years if it is not mentioned in Form 16?

Can I claim relief for HRA arrears under Section 89?

What is Form 10E & where can I file it?

Which assessment year should I choose while filing Form 10E?

Do I need to attach a copy of Form 10E with my tax return?

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