Section 89 of the Income Tax Act: Relief on Salary Arrears and Advance Salary

In summary

Section 89(1) of the Income Tax Act, 1961 provides relief when salary, family pension, or certain other specified receipts are received in arrears or advance and the bunching of income increases the tax burden. The relief effectively compares the tax payable in the year of receipt with the tax that would have applied had the income been received in the relevant year.

• Old provision: Section 89(1) of the Income Tax Act, 1961.
• Current provision: Section 157(1) of the Income Tax Act, 2025.
• Old form: Form 10E.
• Current form: Form 39 for Tax Year 2026-27 onwards.
• Common trigger: Salary or family pension received in arrears or advance.
• Purpose: Reduces the additional tax burden caused by bunching of income.

For Tax Year 2026-27 onwards, the corresponding provision is Section 157 of the Income Tax Act, 2025. Form 39 replaces Form 10E under the new framework.

Section 89(1) provides relief when specified income received in a particular financial year results in the taxpayer being assessed at a higher tax rate than would otherwise have applied.

For example, a salary revision may be approved retrospectively, resulting in several years of additional salary being paid together. The entire arrears may become taxable in the year of receipt, increasing that year's taxable income. Section 89 relief addresses this timing effect.

The relief does not make the arrears tax-free. Instead, it broadly compares the tax impact of receiving the income in one year with the tax impact if it had been received in the years to which it relates.

You can use an Income Tax calculator from Bajaj Finance to understand the broader tax calculation, although a Section 89 relief calculation requires the relevant year-wise income details.

Section 89 can apply to individuals receiving specified forms of salary or related income where the receipt creates a higher tax burden.

Common situations include:

• Salary arrears: Additional salary relating to an earlier period is received later.
• Advance salary: Salary relating to a future period is received earlier.
• Salary for more than 12 months: More than 12 months' salary is received in one financial year under the applicable circumstances.
• Family pension arrears: Arrears of qualifying family pension are received.
• Profits in lieu of salary: Specified payments falling within the relevant statutory definition are received.

The current Section 157 framework expressly covers arrear or advance salary, salary for more than 12 months in a tax year, specified profits in lieu of salary, and arrears of family pension.

The principle is to compare two tax positions.

First, calculate the tax payable in the year in which the arrears are actually received, both including and excluding the arrears. This shows the additional tax arising because the income was received together.

Next, calculate the tax impact for each year to which the arrears relate, considering the income as though it had been received in that relevant year.

The excess tax burden arising in the year of receipt, where applicable, represents the relief.

This approach prevents a taxpayer from being disadvantaged merely because income relating to several periods was paid in one year.

Consider Priya, who receives Rs. 3 lakh of salary arrears in FY 2026-27 relating to FY 2024-25 and FY 2025-26.

The calculation requires separate tax computations:

Last updated: October 2026

The actual relief cannot be determined from the Rs. 3 lakh figure alone. The taxpayer's total income, applicable tax rates, deductions, regime, and the year-wise allocation of the arrears are required.

Form 10E is the prescribed form used under the Income Tax Act, 1961 to provide particulars for claiming Section 89 relief. The Income Tax Department states that Form 10E must be filed online before claiming the relief in the Income Tax Return.

The form covers different types of receipts, including arrears or advance salary, family pension, gratuity, specified termination compensation, and commuted pension, with the applicable annexure depending on the nature of the receipt.

For AY 2026-27, where the taxability is governed by the 1961 Act, Form 10E continues to apply. For Tax Year 2026-27 under the new Act, Form 39 applies instead.

Form 39 is the new form for claiming relief under Section 157 of the Income Tax Act, 2025.

The Income Tax Department's guidance states that Form 39 contains Part A for basic taxpayer details and Part B for relief calculations. It provides structured tables for additional salary, gratuity, retrenchment compensation, and commuted pension, with the resulting relief calculated through the form.

The form is to be furnished electronically through the e-filing portal. It is applicable from Tax Year 2026-27 onwards.

The applicable form depends on the tax framework governing the income.

For AY 2026-27, the Income Tax Department confirms that the Income Tax Act, 1961 continues to govern the relevant income. Therefore, Form 10E is used for Section 89 relief.

For Tax Year 2026-27 onwards, the Income Tax Act, 2025 applies and Form 39 is used for relief under Section 157.

The form should be filed before the relevant Income Tax Return where required. You should also retain the calculation and supporting records.

The exact records depend on the nature of the receipt, but you should retain documents that establish both the amount and the period to which it relates.

• Salary arrears statement: Shows the additional salary and relevant periods.
• Form 16: Provides salary and TDS information.
• Salary slips: Support the underlying salary calculation.
• Tax computations: Show the tax impact before and after considering the arrears.
• TDS records: Help reconcile tax already deducted.
• Pension or employer records: May be relevant for pension or employment-related receipts.

The Income Tax Department's Form 39 guidance specifically refers to PAN, receipt break-ups, TDS certificates, AIS, and tax computations among the documents relevant to the new-form process.

For the applicable form, the general process involves accessing the Income Tax e-filing portal, selecting the relevant form and tax year, entering the required income details, reviewing the computation, and completing electronic verification.

The Income Tax Department's current Form 10E guidance confirms that the form is submitted online and should be furnished before filing the Income Tax Return.

You should also understand the applicable Assessment Year and Financial Year, particularly during the transition from the 1961 Act to the 2025 Act.

Section 89 does not eliminate the underlying tax on salary or other eligible income. It only provides relief against the additional tax burden caused by the timing of the receipt.

The relief may also be unavailable where the statutory conditions are not satisfied. Under Section 157(2) of the 2025 Act, relief is not granted on income for which the specified deduction under Section 19(1), Table Sl. No. 12, has been claimed for that or another tax year.

You should therefore calculate the relief using the applicable year's rules rather than assuming that every arrear payment qualifies.

A taxpayer receiving a substantial arrear payment may need to consider the effect on total taxable income, TDS, advance tax, and the final Income Tax liability.

The distinction between ordinary income and investment gains is particularly important. 

Section 89 of the Income Tax Act, 1961 provides relief when specified salary or related income received in arrears or advance creates an additional tax burden because several periods' income is taxed together.

From Tax Year 2026-27, the corresponding provision is Section 157 of the Income Tax Act, 2025, and Form 39 replaces Form 10E for the new framework. AY 2026-27 remains governed by the 1961 Act, making the transition between the two provisions important when determining the correct form and calculation method.

Last reviewed: October 2026

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