Salary Arrears and Section 89 Relief — Why Arrears Push You Into a Higher Slab, How Rule 21A Recomputes the Tax Year by Year, Filing Form 10E Online Before the Return, a Worked Example, Gratuity and Commuted Pension Relief, and the Errors That Get the Relief Denied

Salary is taxed on a due-or-receipt basis, so arrears of earlier years are added to the year in which they are received. A ₹4 lakh arrear for 2022-23 to 2024-25 landing in 2025-26 can push a taxpayer from the 10% slab into 20% or 30%, and the whole lump sum is taxed at the current year's marginal rate although, had the salary been paid on time, much of it would have fallen into lower slabs or below the exemption. Section 89 restores the position: the relief is the excess of the tax on the arrears at this year's rates over the tax the same amounts would have borne in the years they relate to.

1. 1Compute tax on the total income of the current year including the arrears (A), and tax on the total income excluding the arrears (B). The difference A − B is the extra tax the arrears attracted this year.
2. 2For each earlier year to which the arrears relate, compute the tax on that year's total income as originally assessed (C) and the tax on that income plus the arrears attributable to that year (D). Sum the differences D − C across the years — the tax the arrears would have borne then.
3. 3Relief under section 89 = (A − B) − Σ(D − C), if positive. If the arrears would have borne more tax in the earlier years (rates were higher), there is no relief and none is claimed.
4. 4Use the slab rates, rebates, surcharge and cess of each respective year; the earlier-year computation follows the regime actually used in that year's return (old regime for most pre-2023 years).
5. 5The employer's break-up of the arrears year-wise (in the arrear bill or Form 16 annexure) is the basis; keep it with the earlier years' returns and Form 16s.

1. 1Log in → e-File → Income Tax Forms → File Income Tax Forms → search 'Form 10E' → select the assessment year (2026-27 for arrears received in FY 2025-26) → Continue.
2. 2Annexure I (salary arrears / advance salary): enter the current year's total income excluding arrears, the arrears received, and the year-wise table — for each earlier year the total income as per the return, the arrears relating to it, the tax on both. The form computes the relief as per rule 21A.
3. 3Annexure II / IIA for gratuity (past service 5–15 years / more than 15 years), Annexure III for commuted pension, Annexure IV for compensation on termination — use the one that matches the receipt.
4. 4Preview, e-verify with Aadhaar OTP/EVC/DSC and download the acknowledgement. File 10E first; then in the ITR (Schedule 'Tax paid and verification' / 'Relief under section 89' field in ITR-1's tax computation) enter the same relief.
5. 5Employer's TDS: under section 192(2A) an employee may furnish the arrears particulars (Form 10E working) to the employer, who deducts TDS after considering the relief — avoiding the over-deduction in the first place.

• •Gratuity beyond the exempt limit (₹20 lakh for government and covered employees under the Payment of Gratuity Act) is salary; relief spreads it over the past service — Annexure II for 5–15 years of service, IIA beyond 15.
• •Commuted pension beyond the exempt portion — Annexure III; the tax is spread over three preceding years.
• •Family-pension arrears (other sources) also qualify under section 89 (the section covers salary, family pension and profits in lieu).
• •Leave encashment on retirement is exempt up to ₹25 lakh for non-government employees; the taxable excess gets no section 89 relief.
• •Arrears of interest, rent or business income do not qualify — section 89 is a salary/pension provision.