Firstly, Section 89 of the Income Tax Act provides relief on salary arrears. Essentially, this provision ensures that taxpayers do not suffer an unfairly higher tax burden merely because they receive past salary dues as a lump sum in the current financial year. Consequently, the law protects salaried employees from moving into a higher tax slab solely due to delayed payments.
Moreover, when an employer pays arrears in the current year, the total income increases artificially. As a result, the applicable tax rate may rise. Therefore, Section 89 allows taxpayers to recalculate tax liability. Instead of taxing the arrears in the year of receipt, the system reallocates the income to the years in which it was actually earned. Thus, the government grants relief if earlier tax rates were lower.
- Core Principle of Section 89 Relief
Firstly, salary arrears inflate the current year’s taxable income. Secondly, this inflation may push the taxpayer into a higher slab. However, Section 89 counteracts this effect. Accordingly, the taxpayer compares the tax payable in the current year with the tax that would have been payable in earlier years. If the earlier tax burden was lower, then the government refunds the excess tax as relief. Hence, this mechanism ensures fairness.
- Mandatory Filing of Form 10E
Before claiming relief, the taxpayer must file Form 10E. Importantly, this step is compulsory. Otherwise, the Income Tax Department may reject the relief claim.
- Initially, log in to your account on the Income Tax Portal.
- Secondly, navigate to “Income Tax Forms.”
- Thereafter, select “Persons without Business/Professional Income.”
- Subsequently, locate and submit Form 10E.
Most importantly, submit Form 10E before filing the Income Tax Return (ITR). Otherwise, the system may treat the relief claimed in the ITR as invalid.
- Step-by-Step Calculation Process
Now, let us understand the calculation method. Generally, the process compares tax payable in the current year with tax payable in past years. Specifically, Annexure I and Table A of Form 10E handle this computation.
- Current Year Calculation (Income Excluding Arrears)
Firstly, compute the total income for the relevant assessment year, including salary arrears.
Next, isolate the arrears amount. In other words, subtract arrears from total income to determine income without arrears.
Then, calculate tax on both figures.
Finally, compare the tax on income with arrears against the tax on income without arrears. Consequently, the excess tax represents the additional burden due to arrears.
- Previous Years Calculation (Table A of Form 10E)
Meanwhile, you must allocate arrears to the respective years in which they were earned.
Firstly, assign arrears to each applicable financial year, such as FY 2022–23 or FY 2023–24.
Secondly, enter the original total income for each year. Typically, you can retrieve this data from past ITR acknowledgements.
Thirdly, add the arrears amount to the original income of that year.
Thereafter, recalculate the tax for that year as if the income had been received on time.
For example, if a taxpayer originally earned ₹3 lakh or ₹5 lakh in a past year, the tax liability may have been nil or minimal. However, even after adding arrears, the tax may remain lower than the tax payable in the current year. Hence, this comparison directly determines eligibility for relief.
- Determination of Relief Amount
Now, calculate the relief amount. Specifically, subtract the additional tax payable in past years from the additional tax payable in the current year. If the current-year tax exceeds the past-year tax, Section 89 grants the difference as relief. Therefore, the taxpayer benefits financially.
- Claiming Relief in the ITR
Once you file Form 10E, enter the calculated relief amount in the ITR under “Relief under Section 89.” As a result, the total tax payable reduces, or the refund amount increases. Consequently, this step directly impacts final tax liability.
Important Note on Tax Regimes
Finally, note that calculations may vary depending on whether the taxpayer opts for the Old Tax Regime or the New Tax Regime. Therefore, always verify the figures manually with previously filed ITRs to avoid discrepancies.
Conclusion
In conclusion, Section 89(1) provides structured, logical, and lawful relief on salary arrears. Moreover, using an Automatic Income Tax Arrears Relief Calculator with Form 10E in Excel simplifies calculations.
Therefore, taxpayers can confidently download and use the calculator applicable from FY 2000–01 to FY 2025–26 to ensure accurate compliance and maximum tax relief.
