Section 89(1) relief lowers the tax on salary arrears by letting you spread the back pay notionally over the years it relates to, so a lump sum does not push you into a higher slab. You must file Form 10E on the income tax portal before your return, or the relief is denied.

Section 89(1) Relief

Section 89(1) relief lowers the tax on salary arrears by letting you spread the back pay notionally over the years it relates to, so a lump sum does not push you into a higher slab. You must file Form 10E on the income tax portal before your return, or the relief is denied.

What is Section 89(1) Relief?

Section 89(1) of the Income Tax Act gives relief when you receive salary in arrears or in advance and the lump sum inflates your income in a single year. Because arrears are taxable in the year of receipt, receiving three or four years of back pay at once can push your income into a higher slab and cost more tax than if the money had been paid on time. Section 89(1) works this out both ways: it computes the extra tax caused by adding the arrears in the receipt year, then computes what the tax would have been had each portion been taxed in the year it actually relates to. You get relief equal to the difference, so you effectively pay tax at the slab rates of the earlier years. The relief is claimed by filing Form 10E on the income tax e-filing portal, and it must be filed before you file your income tax return. If Form 10E is not filed, the department disallows the relief and issues a notice, even if you were otherwise eligible. Figures and slab rates change, so verify the arrears breakup and applicable rates against the latest notification for FY 2025-26.

Formula: Relief = (Tax on receipt-year income including arrears - Tax on receipt-year income excluding arrears) - (Tax on each relevant year including its arrears portion - Tax on each relevant year excluding it)

Example

An employee receives ₹3,00,000 of arrears in FY 2025-26 relating to the previous three years. Adding the full ₹3,00,000 in the receipt year raises tax by ₹62,400 because part of it is taxed at 30%. When the ₹3,00,000 is split notionally across the three earlier years, most of it falls in the 5% and 20% slabs, so the extra tax across those years is only ₹28,600. Section 89(1) relief = ₹62,400 - ₹28,600 = ₹33,800, claimed via Form 10E.

How Section 89(1) Relief is used

Payroll teams process arrears as a separate earning line and give the employee a year-wise breakup of the back pay. The employee uses that breakup to fill Form 10E on the portal and claim relief. HR does not file Form 10E for the employee, but the year-wise support data from payroll is what makes the calculation possible.

Section 89(1) Relief FAQs

Is Form 10E mandatory for Section 89(1) relief?

Yes. You must file Form 10E on the income tax portal before filing your return. If you claim the relief without filing Form 10E, the department disallows it and sends a notice.

Does Section 89(1) relief apply under the new tax regime?

Yes. The relief is available under both the old and new regimes for salary arrears, but the year-wise recomputation uses the slab rates that applied in each relevant year, so verify the rates against the latest notification.

Who calculates the arrears breakup for Form 10E?

The payroll team gives you the year-wise split of the arrears. Filling and filing Form 10E on the portal is the employee's responsibility.