Section 89 relief

Section 89(1) relief spreads the tax on salary and pension arrears back to the years they relate to. Compute it and file Form 10E, with a worked example.

Updated 22 July 2026

Section 89 relief is a provision of the Income-tax Act, 1961, under Section 89(1), that lowers the tax on arrears or advance of salary, on arrears of family pension, and on some retirement receipts, by treating those sums as if they had been received in the years they actually relate to rather than bunched into one year. It exists because income tax is charged on the total income of a single year at that year’s slab rates, so a lump sum of back pay can be taxed at a higher rate than it would have borne had it arrived on time.

For a central government employee the situation is routine, not rare. A dearness allowance revision is notified months after its effective date and the gap is paid as arrears. A pay commission raises the pay matrix from a back date and the difference for a year or more is released in one instalment. Pay is refixed on a promotion or on the Modified Assured Career Progression scheme and the shortfall for the intervening period is paid together. A pension is revised and the revised amount for earlier months follows later. In each case the money belongs to earlier years but is taxed in the year it reaches the employee.

Section 89(1) corrects the extra tax that this bunching causes. The relief is not a deduction or an exemption; the arrears remain fully taxable. What the provision does is cap the tax on them at what it would have been across the correct years. The mechanics are set out in Rule 21A of the Income-tax Rules, 1962, and the relief must be claimed through Form 10E, filed online before the return. This article explains what qualifies, how the computation works with a worked example, how Form 10E is filed, how the different receipts are treated, and how the relief interacts with the new tax regime.

What Section 89 relief covers

Section 89(1) is not confined to salary arrears, though that is its most common use. Read with Rule 21A, it gives relief on the following receipts, each with its own method of computation:

Arrears or advance of salary (Rule 21A(2)). Salary received in a year but relating to earlier years, such as DA arrears, pay commission arrears, and pay refixed on promotion or MACP. Advance salary received before the year it relates to, salary received for more than twelve months in one year, and profits in lieu of salary under Section 17(3) are treated the same way.
Arrears of family pension (also Rule 21A(2)). Family pension paid in arrears to the family of a deceased employee, taxable in the recipient’s hands after the deduction available on it.
Gratuity for past service (Rule 21A(3)). The part of gratuity that remains taxable after the Section 10(10) exemption, where the past service covers five years or more.
Compensation on termination of employment (Rule 21A(4)), for service of three years or more.
Commuted pension received in excess of the Section 10(10A) exemption (Rule 21A(5)).

The salary-arrears route under Rule 21A(2) is the one a serving or retired government employee uses most, so the computation below is set out for it. The gratuity, commuted pension, and family pension routes are described separately later, since their arithmetic differs. One bar applies across all of them: no relief under Section 89 is allowed for any year in which the exemption for voluntary retirement compensation under Section 10(10C) has been claimed, the two being mutually exclusive. Rule 21A(6) leaves any other case to be dealt with as the Board directs.

Why arrears are taxed too heavily without the relief

Income tax is a tax on the total income of one previous year, charged at the slab rates fixed for that year. The slabs are progressive, so the last rupee of a larger income is taxed at a higher rate than the last rupee of a smaller one. When a year’s worth of arrears is added on top of a full year’s current salary, the arrears sit at the top of the combined income and are taxed at the highest slab that income reaches. Had the same arrears been received in their own years, spread across two or three annual incomes, part of them might have fallen in a lower slab or been covered by the basic exemption.

The result is that the lump sum bears more tax than the underlying entitlement ever would have. Section 89(1) removes that excess. It does not remove the tax that the arrears would genuinely have attracted in the correct years; it removes only the additional tax caused by the bunching. Where the bunching causes no jump in slab, because the employee is in the same slab in every year concerned, the relief comes to nil, and that is the correct answer rather than a defect.

How the relief is computed for salary arrears

Rule 21A(2) sets out a six-step computation. It compares the extra tax the arrears cause in the year of receipt against the extra tax they would have caused in the years they relate to, and gives relief for the difference. The tax at every step is the full tax for that year, including surcharge where it applies and the Health and Education Cess, and after the Section 87A rebate where the year’s income qualifies for it.

Tax on the receipt year, including arrears. Compute the tax on the total income of the year in which the arrears are received, with the arrears included.
Tax on the receipt year, excluding arrears. Compute the tax on the same year’s total income with the arrears taken out.
Additional tax in the receipt year (call it A). Subtract step 2 from step 1. This is the extra tax the arrears cause by arriving all at once.
Tax on each earlier year, including its share of arrears. Split the arrears into the portions relating to each earlier year. For every such year, compute the tax on that year’s total income with its portion of the arrears added.
Tax on each earlier year, excluding its share. For every such year, compute the tax on that year’s total income without the arrears portion.
Additional tax across the earlier years (call it B). For each earlier year, subtract step 5 from step 4, then add these differences together.

The relief under Section 89(1) is A less B. If A is greater than B, the difference is the relief and it reduces the tax payable for the receipt year. If B is equal to or greater than A, there is no relief, because the arrears would have carried at least as much tax in the correct years as they carry now.

The figures for the earlier years come from those years’ filed returns or Form 16s. The earlier assessments are not reopened or revised; they are only recomputed on paper inside Form 10E to find the relief. The entire relief is then claimed in the return for the year of receipt.

A worked example

Take a central government employee who receives Rs. 2,00,000 of pay and dearness allowance arrears in the financial year 2025-26. The arrears relate equally to two earlier years, Rs. 1,00,000 to 2023-24 and Rs. 1,00,000 to 2024-25. The employee is in the old regime throughout, and the slabs are taken as nil up to Rs. 2,50,000%, 5% from Rs. 2,50,000 to Rs. 5,00,000%, 20% from Rs. 5,00,000 to Rs. 10,00,000%, and 30% above Rs. 10,00,000, with a 4% cess.

In the receipt year 2025-26, the taxable income excluding arrears is Rs. 12,00,000 and the tax on it is Rs. 1,79,400 after cess. Adding the Rs. 2,00,000 of arrears takes the taxable income to Rs. 14,00,000, and because the whole of the arrears sits above Rs. 10,00,000, it is taxed at 30%. The tax rises to Rs. 2,41,800 after cess. The additional tax A is Rs. 2,41,800 less Rs. 1,79,400, which is Rs. 62,400.

In each earlier year, the taxable income excluding arrears is Rs. 6,00,000, on which the tax is Rs. 33,800 after cess. Adding Rs. 1,00,000 of arrears takes it to Rs. 7,00,000, where the arrears fall in the 20% slab, and the tax becomes Rs. 54,600 after cess. The extra tax in that year is Rs. 20,800. The two earlier years are alike, so the total extra tax B across them is Rs. 41,600.

Step	Amount
Additional tax in the receipt year (A)	Rs. 62,400
Additional tax across the earlier years (B)	Rs. 41,600
Section 89(1) relief (A less B)	Rs. 20,800

The relief is Rs. 20,800. It arises because the arrears were taxed at 30% when bunched into 2025-26, but would have been taxed at 20% had they been received in 2023-24 and 2024-25. The relief recovers the 10% difference, with cess, on the Rs. 2,00,000. The employee claims Rs. 20,800 as relief in the 2025-26 return, and the net tax for that year falls by the same amount. Had the employee been in the 30% slab in the earlier years too, A and B would have matched and the relief would have been nil.

Form 10E: the mandatory filing

Form 10E is the statement in which the Section 89 computation is set out, and it is not optional. It must be filed online, on the income-tax e-filing portal, before the return for the year is submitted. This requirement applies from the assessment year 2015-16; before that the form was kept with the employer, but it is now filed with the department electronically. Form 10E itself is prescribed under Rule 21AA of the Income-tax Rules, 1962.

The consequence of skipping it is specific. If the relief is claimed in the return without Form 10E on record, the return is processed with the relief removed. The intimation under Section 143(1) shows the relief disallowed, the tax added back, and interest charged. The relief is not lost for good, since Form 10E can be filed and the return rectified, but the smooth course is to file Form 10E first and claim the relief second.

To file it, log in to the e-filing portal, open the e-file menu, choose income-tax forms, and select Form 10E for the relevant assessment year. The form has annexures for each type of receipt: Annexure I for arrears or advance of salary, and separate annexures for gratuity, compensation, and commuted pension. Fill the annexure that fits the receipt with the year-by-year figures used in the computation, submit the form, and only then file the return, entering the relief figure in the return at the field for relief under Section 89.

A serving employee can also route the relief through the employer. Under Section 192(2A), on the employee furnishing the particulars in Form 10E, the drawing and disbursing officer gives effect to the Section 89 relief while deducting tax at source, so that the monthly deduction already reflects it rather than the employee waiting to claim a refund on the return.

The other receipts Section 89 covers

Beyond salary arrears, Rule 21A prescribes methods for the retirement receipts that Section 89(1) reaches. These matter to a retiring or retired government employee and to a family pensioner.

Gratuity for past service. Where gratuity is received for past service of not less than five years and part of it remains taxable after the Section 10(10) exemption, Rule 21A(3) allows the taxable part to be spread. The method depends on the length of the past service the gratuity covers, treating fifteen years or more differently from five to fifteen, and it averages the taxable gratuity over preceding years rather than over the exact years of accrual. For most central government employees the death-cum-retirement gratuity is fully exempt within the Section 10(10) ceiling, so this route is used only where a taxable balance remains.

Commuted pension. Where a commuted pension is received in excess of the Section 10(10A) exemption, Rule 21A(5) brings the excess within Section 89(1) relief. A central government pensioner’s commuted pension is exempt under Section 10(10A), so this route arises only where an exemption limit is exceeded.

Family pension arrears. Family pension is taxable in the recipient’s hands as income from other sources, after the deduction available on it. Where it is received in arrears, as a slice of the wider category of pension arrears, Rule 21A(2) gives relief on the same spreading principle as salary arrears, filed through Form 10E.

Compensation on termination. Rule 21A(4) covers compensation received on the termination of employment after three years or more of continuous service, again spreading the tax across earlier years.

Section 89 relief under the new tax regime

Section 89(1) relief is available under the new tax regime as well as the old one. The provision is not tied to either regime; it corrects the bunching of income whatever the rate structure. What changes under the new regime is the tax at each step of the computation, because each year’s tax is worked out under the regime and the slabs that applied to that year.

Two points follow for a government employee. First, because the arrears computation looks back to earlier years, a single Form 10E can carry different regimes across different years, the receipt year under one and an earlier year under another, and that is correct. Each year is computed under its own law. Second, the new regime’s wider slabs and its Section 87A rebate, which makes income up to Rs. 12,00,000 tax-free for the year, often reduce or remove the relief, because they lower the extra tax the arrears cause in the first place. Where the new regime already leaves the receipt-year tax low, the bunching is smaller and the relief is smaller. The income tax for government employees article sets out the current slabs and rebate for both regimes.

Common mistakes to avoid

The relief is lost or miscomputed most often for a handful of reasons, each avoidable.

Claiming the relief without filing Form 10E. The single most common error. The return then processes with the relief withdrawn under Section 143(1). File Form 10E first.
Splitting the arrears wrongly. The arrears must be allocated to the years they actually relate to, using the arrear statement from the drawing and disbursing officer, not spread evenly by guesswork. A DA arrear covers specific months; a pay commission arrear covers the period from the effective date.
Using the wrong year’s slabs for the earlier years. Each earlier year is recomputed at that year’s rates and rebate, not at the receipt year’s rates.
Expecting relief where there is none. If the slab is the same in every year, the relief is nil. That is the correct outcome, not a filing error.
Forgetting the receipt-year income already includes the arrears. The Form 16 for the receipt year already shows the arrears in the taxable salary, so the return should not add them again on top; the relief works within that combined figure.

Section 89 after the Income-tax Act, 2025

The Income-tax Act, 2025, replaces the Income-tax Act, 1961 with effect from 1 April 2026, moving to a single tax-year concept, and it carries the relief on arrears forward under a new number. From the 2026-27 tax year the relief sits in Section 157 of the 2025 Act, the statement is Form No. 39 in place of Form 10E, and the computation is prescribed by Rule 73 of the Income-tax Rules, 2026 in place of Rule 21A. The substance is unchanged: the tax on bunched arrears is spread back to the years they relate to, and the same voluntary-retirement bar carries over, so no relief is given where the exemption for retirement compensation has been claimed.

The two frameworks apply by year. Returns for the financial year 2025-26 and earlier are filed under the 1961 Act, so the relief for those years is Section 89, computed under Rule 21A and claimed on Form 10E, exactly as set out above. Arrears received in the financial year 2026-27 and later fall under Section 157, Rule 73, and Form 39. Because an arrears computation always looks back to earlier years, a single claim can straddle the change, with the receipt year under the new Act and the earlier years recomputed under the law that applied to them.

Frequently Asked Questions (FAQs)

Is Form 10E compulsory to claim Section 89 relief?

Yes. Form 10E must be filed online on the income-tax e-filing portal before the return is submitted. If you claim relief in the return without filing Form 10E, the relief is disallowed and an intimation under Section 143(1) withdraws it, adding the tax back with interest.

Do I need to reopen or revise my old returns to claim Section 89 relief?

No. The earlier years are only recomputed on paper inside Form 10E to work out the relief. You do not revise or reopen those assessments. The whole relief is claimed in the return for the year you receive the arrears.

Is Section 89 relief available under the new tax regime?

Yes. Section 89(1) relief applies under both the new regime and the old regime. The tax at each step of the Form 10E computation is worked out under the regime and slabs that applied to that particular year, so the two regimes can appear across different years in one calculation.

Are DA arrears and pay commission arrears eligible for Section 89 relief?

Yes. Dearness allowance arrears, pay commission arrears, and pay refixed on MACP or promotion are arrears of salary under Section 89(1) read with Rule 21A(2). Split each arrear into the years it relates to and file Form 10E to spread the tax back to those years.

When does Section 89 relief actually reduce my tax?

Only when the arrears push you into a higher slab in the year of receipt than the slab that applied in the years they relate to. If your slab is the same across all the years, the relief is nil, because the tax bunching that Section 89 corrects has not happened.

Is relief available on the commuted value of pension and on gratuity?

Yes, to the extent they are taxable. Rule 21A gives relief on a commuted pension and on gratuity for past service beyond the Section 10 exemptions, and on family pension arrears under Rule 21A(2). Each has its own method inside Form 10E, separate from the salary-arrears steps.

External references

References

Income-tax Act, 1961, Section 89(1), relief on salary or family pension paid in arrears or in advance, and on gratuity or commuted pension for past service; no relief for any year in which the Section 10(10C) exemption for voluntary retirement compensation has been claimed.
Income-tax Rules, 1962, Rule 21A, manner of computing relief under Section 89(1): sub-rule (2) arrears or advance of salary and arrears of family pension, (3) gratuity, (4) compensation on termination, (5) commutation of pension, (6) other cases. Form 10E prescribed under Rule 21AA.
Central Board of Direct Taxes, requirement to file Form 10E online on the e-filing portal to claim Section 89 relief, effective from assessment year 2015-16.
Income-tax Act, 1961, Section 143(1), intimation withdrawing relief claimed under Section 89 without a filed Form 10E.
Income-tax Act, 1961, Section 192(2A), effect to Section 89 relief in tax deducted at source on the employee furnishing Form 10E.
Income-tax Act, 2025, effective 1 April 2026, replacing the Income-tax Act, 1961: the Section 89 relief becomes Section 157, Form 10E becomes Form No. 39, and Rule 21A becomes Rule 73 of the Income-tax Rules, 2026.