To calculate Income Tax Arrears Relief under Section 89(1) for the Financial Year (FY) 2025-26, you must file Form 10E online through the Income Tax Department’s e-filing portal before submitting your Income Tax Return (ITR). This process ensures that you are not unfairly taxed at a higher rate in the current year just because you received a lump sum payment that actually pertains to previous financial years.
Step-by-Step Calculation Process
The relief amount represents the difference between:
- the additional tax you pay in the current year due to arrears, and
- the additional tax you would have paid if those arrears had been received in the year they were due.
Let’s go step by step to understand the calculation process more clearly.
Step 1: Calculate the tax on total income, including arrears (Current Year: F.Y. 2025-26 / A.Y. 2026-27)
Firstly, calculate your total income for the current financial year by adding the arrears you received to your regular income.
Then, compute the tax payable on this total amount using the tax rates applicable for F.Y. 2025-26.
💡 Tip: Include all salary components and arrear amounts as reflected in Form 16 or your employer’s statement.
Step 2: Calculate the tax on total income excluding arrears (Current Year)
Next, calculate your total income for F.Y. 2025-26 without including arrears.
After that, compute the tax payable on this revised income using the same financial year’s tax rates.
This will show the tax difference caused solely by arrears when compared with Step 1.
Step 3: Find the difference in tax for the current year (Step 1 – Step 2)
Now, subtract the tax amount from Step 2 from the tax amount in Step 1.
This difference — let’s call it ‘X’ — represents the extra tax you are paying in the current year because of the arrears being included in your income.
Consequently, this ‘X’ will form the base for your relief calculation.
Step 4: Calculate the tax on total income, including arrears for the year(s) to which the arrears relate
Then, for each previous financial year to which your arrears belong (for example, F.Y. 2023-24), you must recalculate your total income by adding the relevant arrear portion to that year’s original income.
Afterwards, compute the tax payable on this adjusted income using that year’s applicable tax rates.
This helps determine how much tax would have been due if you had actually received those arrears in the correct year.
Step 5: Calculate the tax on total income excluding arrears for the same previous year(s)
Meanwhile, for the same earlier year(s), compute the tax payable on the actual total income (excluding arrears).
Be sure to use the correct rates for that particular financial year.
This comparison shows what your tax liability originally was, without the arrears component.
Step 6: Find the difference in tax for the previous year(s) (Step 4 – Step 5)
After both calculations, find the difference between the two tax amounts.
This difference — let’s call it ‘Y’ — represents the extra tax you would have paid had the arrears been taxed in their respective earlier years.
If your arrears relate to multiple years, repeat this process for each year, and finally sum up all the ‘Y’ values.
Step 7: Determine the final relief amount
Finally, compare X (current year’s extra tax) and Y (previous years’ extra tax).
The relief amount is calculated as:
👉 Relief = X – Y
If ‘Y’ is less than X, you can claim relief under Section 89(1) for the difference.
However, if ‘Y’ is greater than or equal to ‘X’, then unfortunately, no relief will be available.
Therefore, this step confirms whether you actually qualify for any tax relief.
How to File Form 10E Online
Once your calculations are complete, you must file Form 10E to officially claim your relief under Section 89(1). Importantly, this must be done before filing your ITR for the Financial Year 2025-26 (Assessment Year 2026-27).
Follow these simple steps to file Form 10E online:
- Firstly, log in to the official Income Tax e-filing portal using your PAN and password.
- Then, go to the “e-File” tab, select “Income Tax Forms”, and click on “File Income Tax Forms.”
- Next, under the section “Persons without Business/Professional Income,” select Form 10E.
- Choose the relevant Assessment Year (A.Y. 2026-27 for F.Y. 2025-26) and click “Continue.”
- Click “Let’s Get Started”, and select the option related to “Arrears Salary/Family Pension” (or as applicable).
- After that, enter all required details such as arrear amounts, the financial years they pertain to, and income details for those years — as per your calculations and employer’s Form 16 data.
- Then, preview the form carefully to ensure accuracy.
- Finally, e-verify and submit the form.
🗂️ Note: You do not need to attach Form 10E with your ITR, but make sure to keep a copy for your records, as the Income Tax Department may ask for it later for verification.
Conclusion
In summary, claiming Income Tax Arrears Relief under Section 89(1) is essential to avoid overpaying taxes due to delayed salary or pension payments. By carefully following the step-by-step calculation and filing Form 10E online, you ensure that your tax liability remains fair and accurate.
Moreover, this relief helps you balance your tax burden across financial years, ensuring that income received late doesn’t push you into a higher tax bracket unnecessarily.
Therefore, always verify your arrears details, complete your calculations precisely, and submit Form 10E before filing your ITR to enjoy the rightful relief you deserve.
