Salary Arrears Received? Claim Relief Under Section 89(1) in Your ITR

Relief under Section 89(1) of the Income Tax Act, 1961, is designed to protect taxpayers from paying higher taxes due to the timing of salary payments. This provision is particularly helpful when salary, pension, gratuity, or other income is received in arrears or advance, resulting in a spike in taxable income in one year, potentially pushing the taxpayer into a higher tax bracket. Let us explore this concept in detail, with examples and a complete guide on how to claim it in your Income Tax Return (ITR).

What is Relief under Section 89(1)?

Section 89(1) provides relief to taxpayers who receive income in the form of arrears. This provision ensures that taxpayers are not unfairly burdened with higher tax liability solely because a payment meant for previous years was made in the current financial year.

Income Types Eligible for Relief:

• Salary received in arrears
• Premature withdrawal from Provident Fund
• Gratuity
• Commuted value of pension
• Arrears of family pension
• Compensation received on termination of employment

It is important to note that relief is applicable only if the additional income results in an increase in tax liability for the year of receipt. If it doesn’t, relief under Section 89(1) will not be granted.

How Section 89(1) Works: A Step-by-Step Calculation Example

Let us consider the case of Raj, who received arrear salary of ₹50,000 in FY 2023-24, which pertains to FY 2020-21.

Step 1: Calculate tax liability for the current year (2023-24) including the arrear

• Total income including arrear: ₹6,00,000 (including ₹50,000 arrear)
• Assume tax on ₹6,00,000 = ₹30,000

Step 2: Calculate tax liability for the current year excluding the arrear

• Total income excluding arrear: ₹5,50,000
• Assume tax on ₹5,50,000 = ₹27,500

Step 3: Calculate the increase in tax liability (X)

• X = ₹30,000 – ₹27,500 = ₹2,500

Step 4: Calculate tax liability for FY 2020-21 (the year to which arrear pertains), including arrear

• Income including arrear: ₹4,50,000 + ₹50,000 = ₹5,00,000
• Assume tax on ₹5,00,000 = ₹12,500

Step 5: Calculate tax liability for FY 2020-21 excluding arrear

• Income excluding arrear: ₹4,50,000
• Assume tax on ₹4,50,000 = ₹11,000

Step 6: Calculate the increase in tax liability for FY 2020-21 (Y)

• Y = ₹12,500 – ₹11,000 = ₹1,500

Step 7: Calculate Relief under Section 89(1)

• Relief = X – Y = ₹2,500 – ₹1,500 = ₹1,000

Thus, Raj can claim a relief of ₹1,000 under Section 89(1), which will reduce his overall tax liability for FY 2023-24.

How to Claim Relief under Section 89(1)

Claiming relief under Section 89(1) involves the following key steps:

1. File Form 10E

• It is mandatory to file Form 10E online on the Income Tax e-Filing portal.
• The form should be submitted before filing your ITR.

2. Upload Supporting Documents

• Salary slips
• Certificate from employer showing arrears and the financial year to which they pertain

3. Ensure Reflection in Form 16

• The calculation of relief under Section 89(1) is generally provided in Part B of Form 16 by your employer.

4. File ITR with Relief Information

• Report the relief amount while filing your ITR for the year in which arrears are received.

5. Maintain Proof

• Always keep a copy of Form 10E and your calculations for future reference or scrutiny by the Income Tax Department.

Summary Table of Calculation

Importance of Filing Form 10E

Failure to file Form 10E will sometime lead to denial of relief under Section 89(1), even if the income qualifies for relief.

You can file Form 10E through:

1. Logging into https://www.incometax.gov.in
2. Navigate to e-File > Income Tax Forms > File Income Tax Forms
3. Select Form 10E and assessment year
4. Enter all relevant data and submit

Which ITR Form to Use?

The choice of ITR form depends on your income composition:

• ITR-1 (Sahaj): Use only if you have salary income, one house property, and income up to ₹50 lakhs.
• ITR-2: Use this if you also have capital gains, foreign income, or income exceeding ₹50 lakhs.
• ITR-3: If you have business or professional income along with arrears.

For most salaried individuals receiving arrears, ITR-1 or ITR-2 will be applicable.

Due Date and Extended Due Date for Filing ITR (AY 2025-26)

For Assessment Year 2024–25, the due dates for filing your Income Tax Return are as follows:

Note: The extended due date is applicable only if notified by CBDT. As of now, a circular (e.g., Circular No. 06/2025) may extend the due date to 15th September 2025, especially for specific categories.

Frequently Asked Questions (FAQs)

Q1: Can I claim relief for multiple years of arrears received in one year? Yes. Relief is available separately for each financial year to which the arrears pertain. You will need to perform individual year-wise calculations.

Q2: What if my employer hasn’t provided Form 16 with Section 89(1) calculation? You can still claim relief by calculating it yourself and filing Form 10E.

Q3: Is Form 10E required every year? No. It is required only for the year in which arrears or other eligible income is received.

Q4: Is Form 10E required for claiming relief on gratuity or pension arrears? Yes. Relief on gratuity, pension, or other similar income types also requires Form 10E filing.

Final Thoughts

Section 89(1) is a crucial relief mechanism that ensures fair taxation when you receive delayed salary or lump sum payments. Proper calculation and filing of Form 10E can reduce your tax burden and prevent unnecessary penalties. Ensure accurate documentation and timely filing to make the most of this provision. If unsure, consult a tax professional to avoid mistakes and maximise your tax efficiency.