How to Claim Relief Under Section 89 for Salary Arrears

When employees receive salary arrears, pensions in arrears, or advance payments, they often face a steep tax liability due to the lump-sum nature of these payments. This can unfairly push taxpayers into a higher tax bracket, inflating their tax burden. Fortunately, the Income Tax Act of India offers a solution: relief under Section 89. This provision is designed to ensure that taxpayers are not penalized simply because of the timing of their income.

In this blog, we will explore how relief under Section 89 works, who is eligible, how to calculate the relief, and the step-by-step process to claim it using Form 10E.

What Is Relief Under Section 89?

Relief under Section 89 is a provision under the Income Tax Act, 1961, that provides tax relief to individuals who receive any portion of their salary or family pension in arrears or in advance. Without this relief, the entire amount received in one financial year would be taxed in that year, potentially pushing the taxpayer into a higher tax slab.

To avoid this unfair burden, relief under Section 89 allows taxpayers to spread out the income over the years to which it actually pertains, resulting in a fairer tax calculation.

When Can You Claim Relief Under Section 89?

You can claim relief under Section 89 in the following situations:

• Salary received in arrears or advance

• Family pension received in arrears

• Gratuity received for past services

• Commuted pension

• Compensation on termination of employment

• Premature withdrawal from Provident Fund

Each of these payments can lead to a higher tax burden in the year of receipt, which is exactly what relief under Section 89 is meant to alleviate.

Eligibility Criteria for Claiming Relief

To avail relief under Section 89, the following conditions must be met:

1. You must be a salaried individual or pensioner.

2. You must have received income in arrears or advance.

3. The arrears/advance should relate to one or more previous financial years.

4. You must file Form 10E before filing your income tax return.

Remember: Form 10E filing is mandatory. If not submitted, the Income Tax Department may deny your relief under Section 89 claim.

Calculation of Relief Under Section 89

The calculation process for relief under Section 89 involves a comparative method. Here’s a simplified version of how it works:

Step 1: Compute tax payable on total income including arrears (in the current year).

Step 2: Compute tax payable on total income excluding arrears (in the current year).

Step 3: Calculate the difference between Step 1 and Step 2. This gives the additional tax due to arrears.

Step 4: Compute the tax payable on the total income of each year to which the arrears relate including the portion of arrears.

Step 5: Compute the tax payable on the total income of each year to which the arrears relate excluding the portion of arrears.

Step 6: Calculate the difference between Step 4 and Step 5. This gives the additional tax that would have been payable in those years.

Step 7: The relief under Section 89 is the difference between the tax calculated in Step 3 and the tax calculated in Step 6.

If the tax burden in the current year is higher than what it would have been if spread across previous years, relief under Section 89 is granted for the excess.

How to Claim Relief Under Section 89 Using Form 10E

Filing Form 10E is essential to claim relief under Section 89. Here is a step-by-step guide:

Step 1: Log in to the Income Tax e-Filing Portal

Visit https://www.incometax.gov.in and log in using your PAN, password, and captcha.

Step 2: Go to the e-File Section

Navigate to e-File > Income Tax Forms > File Income Tax Forms.

Step 3: Select Form 10E

From the list of available forms, select Form 10E – Relief under Section 89(1) and click on “Continue.”

Step 4: Fill in Required Details

You’ll be asked to provide:

• Assessment year

• Type of income received (arrears, gratuity, compensation, etc.)

• Year-wise breakup of arrears

• Total income in each relevant year

Step 5: Preview and Submit

Review your entries carefully. Once verified, submit the form digitally.

Step 6: File ITR

After submitting Form 10E, proceed to file your Income Tax Return (ITR). Ensure that the relief is reflected under the section “Tax Relief” in your ITR.

Important Note: If you don’t file Form 10E, the CPC (Centralized Processing Center) may reject your relief claim, even if your ITR reflects the correct computation.

Example to Illustrate Relief Under Section 89

Suppose you received ₹1,00,000 as salary arrears in FY 2024–25, which pertained to FY 2022–23. Here’s how relief under Section 89 helps:

• Without relief, the entire ₹1,00,000 would be taxed in FY 2024–25, possibly pushing you into a higher tax slab.

• With relief, tax will be calculated as if ₹1,00,000 was received in FY 2022–23, and you’ll pay only the additional tax applicable at that time.

• The difference in tax burden is the relief under Section 89.

This way, you’re not penalized simply because your employer paid you late.

Documents Needed to Claim Relief

Before filing relief under Section 89, keep the following ready:

• Detailed breakup of arrears received

• Salary slips or certificates from employer

• Form 16 from the year of receipt and years the arrears pertain to

• Computation sheet for tax calculations

• PAN, Aadhaar, and login credentials for the e-filing portal

Common Mistakes to Avoid

1. Not filing Form 10E – This is the most frequent reason for denial of relief.

2. Incorrect year-wise breakup – Ensure that arrears are properly split across relevant financial years.

3. Mismatch with Form 16 – The data you enter should match with the Form 16 issued by your employer.

4. Assuming automatic relief – You must claim it actively; the Income Tax Department does not apply relief under Section 89 automatically.

Final Thoughts

Claiming relief under Section 89 is crucial if you’ve received salary arrears or any lump-sum payment related to prior financial years. Without this relief, you could end up paying more tax than necessary. The process is relatively straightforward but requires attention to detail, especially in accurately filing Form 10E and matching data with previous years’ records.