Introduction

Section 89 provides income tax relief to a taxpayer when they receive:

• Salary in arrears (for past years), or
• Salary in advance (for future years), or
• Family pension in arrears,

which could result in higher tax liability due to being taxed in a lump sum in a single year.

This section ensures that the taxpayer is not penalized for the timing of income receipt, which distorts the actual income pattern and artificially pushes the taxpayer into a higher tax slab.

Applicability of Section 89 Relief

This relief is applicable in cases like:

• Arrears of salary (due to pay commission recommendations, promotions, etc.)
• Advance salary (paid before due date)
• Commuted/uncommuted pension or arrears of pension
• Gratuity for past services
• Leave encashment received for previous years

Relevant Form: Form 10E

Form 10E must be filed online on the Income Tax e-filing portal before filing the income tax return (ITR) to claim relief under Section 89(1).

It includes:

• Particulars of income received in arrears or advance
• Year-wise breakup of such income
• Computation of tax for both current and past years for comparison

⚠️ Note: If Form 10E is not submitted, the relief claim under Section 89 may be rejected, and a demand notice may be issued.

4. Calculation of Relief under Section 89 – Step-by-Step Process

 The relief = Excess tax paid due to arrears/advance in the current year – additional tax that would have been payable if the arrears were taxed in the relevant past year(s).

🔢 Step-by-Step Illustration & Computation Method:

Assumption:

• ₹3,00,000 salary arrears received in FY 2024–25 for FY 2021–22.

✅ Step 1: Compute tax liability for the year of receipt (2024–25)

🔹 Add ₹3,00,000 to total income and calculate tax.

✅ Step 2: Compute tax liability without arrears (2024–25)

🔹 Subtract ₹3,00,000 from total income and recalculate tax.

📌Tax on arrears = Step 1 – Step 2

✅ Step 3: Compute tax liability of the relevant previous year (2021–22)

🔹 Add ₹3,00,000 to the income of that year and calculate revised tax.

✅ Step 4: Compute actual tax liability of that past year (2021–22)

🔹 Original income without arrears.

📌Additional tax payable in past year = Step 3 – Step 4

✅ Step 5: Calculate Relief

Relief = Tax on arrears as per current year – Additional tax had it been taxed in past year

✔️ If this value is positive, the taxpayer gets relief.
✖️ If it’s negative or zero, no relief is allowed.

Example Calculation

🔹Relief = ₹40,000 – ₹52,500 = NIL
❌ No relief as tax impact would have been higher if taxed earlier.

Forms & Filing Requirements

How to File Form 10E on Income Tax Portal

1. Login to https://incometax.gov.in
2. Go to e-File → Income Tax Forms → File Income Tax Forms
3. Select Form 10E
4. Fill all relevant Annexures based on type of arrears:
   • Annexure I – Arrears/Advance Salary
   • Annexure II – Gratuity (past service <15 years)
   • Annexure IIA – Gratuity (past service >15 years)
   • Annexure III – Commuted Pension
   • Annexure IV – Leave encashment
5. Submit and note acknowledgment
6. File your ITR and mention Section 89 relief in ‘Schedule S’ or ‘Schedule TTI’

Important Points to Remember

• 📅 Form 10E must be filed before ITR to avoid denial of relief.
• 📜 Maintain documentary proof of arrears received (salary slips, orders, etc.)
• 🧮 Use Income Tax calculator or consult a tax professional for accuracy.
• 👤 Relief applies only when tax slab changes due to arrears.
• 🧾 ITR-V will not reflect Form 10E – it’s a separate filing.

Legal Provisions & Circulars

• Section 89(1) – Relief for arrears/advance salary
• Rule 21A – Specifies the method of relief calculation
• Form 10E – As per Rule 21A(2)

Recommendations

• Always file Form 10E online before ITR.
• Use separate calculation sheets for each component (salary, pension, gratuity).
• Avoid incorrect breakup across years – use actual documents from employer.
• For pensioners, also check if any relief under Section 57(iia) (family pension) is separately applicable.
• Some employers allow TDS adjustment if Form 10E is submitted in time – check with them.
• Arrears of salary received under court orders or pay commission are eligible.

Conclusion

Section 89 ensures fair taxation when income is not received uniformly.
Filing Form 10E correctly with proper year-wise allocation is crucial to avoid tax demands or rejection of relief. Taxpayers should always keep records, understand the impact on slabs, and calculate tax under both scenarios to claim accurate relief.