Section 157 relief on arrears of salary and pension

Section 157 of the Income-tax Act, 2025 is the provision that lowers the tax on arrears or advance of salary, on arrears of family pension, and on certain retirement receipts, by measuring the tax those sums bear in the year they arrive against the tax they would have borne in the years they relate to, and refunding the difference. It replaced Section 89 of the Income-tax Act, 1961, which was repealed by Section 536(1) with effect from 1 April 2026. The computation sits in rule 73 of the Income-tax Rules, 2026, and the claim is made on Form No. 39.

The problem the section addresses is arithmetic, not policy. Income tax is charged on the total income of one tax year at that year’s rates, and those rates are progressive, so a lump sum landing on top of a full year’s salary is taxed at the highest band that the combined income reaches. Had the same money arrived on time, spread across two or three annual incomes, part of it would have sat in lower bands or inside the basic exemption of Rs. 4,00,000.

For a central government employee the situation recurs. A dearness allowance revision is notified months after its effective date and the gap is released as arrears. A pay commission raises the pay matrix from a back date and a year or more of difference is paid in one instalment. Pay is refixed on promotion or under 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.

Relief under Section 157 is not a deduction and not an exemption. The arrears stay fully taxable, and the relief only strips out the extra tax that the timing caused. Where the timing caused none, because the employee sat in the same band in every year concerned, the relief is nil.

Receipts that qualify for relief under Section 157

Section 157(1) names four receipts, and relief is available only where the total income is assessed at a rate higher than it would otherwise have been because of one of them. Clause (a) covers a sum in the nature of arrear or advance salary. Clause (b) covers salary for more than twelve months paid in any one tax year. Clause (c) covers a payment in the nature of profits in lieu of salary under Section 18(1). Clause (d) covers arrears of family pension as defined in Section 93(1)(d).

Rule 73 then widens the field on the computation side. Its Table carries five entries, and entries 2 to 5 reach receipts that are not salary arrears at all: gratuity for past service of five years or more, compensation on the termination of employment, and the commutation of pension. Rule 73(2) leaves any other receipt to the Board, which may allow such relief as it deems fit having regard to the circumstances of the case.

The receipt that reaches most central government employees is the first one. A dearness allowance arrear, a pay commission arrear, and pay refixed on promotion or under the Modified Assured Career Progression scheme are all arrear salary under Section 157(1)(a), and all are computed under entry 1 of the Table. A revised pension paid for earlier months is arrear salary too, because Section 15(2) treats a former employer as an employer and Section 16(b) brings pension within the head Salaries. Family pension is the exception: it is charged under income from other sources, which is why Section 157(1)(d) had to name it.

Computation of relief on arrears of salary and family pension

Entry 1 of the rule 73 Table computes the relief on additional salary or additional family pension in four steps, and states the answer as A less B where A exceeds B. Every tax figure in those steps is the full tax for the year concerned, including surcharge where the income attracts it and the 4% health and education cess, and after the rebate the year allows.

Step 1 ascertains the tax years the additional salary or additional family pension relates to, and the amount relating to each such year. This is where the arrear statement from the drawing and disbursing officer does its work, because the split has to follow the months the arrears actually cover.

Step 2 calculates A, which is C less D. C is the tax on the total income of the relevant tax year, meaning the year of receipt. D is the tax on that same total income reduced by the additional salary or additional family pension, computed as if the reduced figure were the total income of that year. A is therefore the tax the arrears attract by arriving all at once.

Step 3 calculates E for each earlier year ascertained in Step 1, as F less G. G is the tax payable on the total income of that earlier year as it stood. F is the tax on that income increased by the amount relating to that year, computed as if the increased figure were the total income of that year. E is the tax the arrears would have attracted in that year.

Step 4 aggregates. B is the total of the E figures for every tax year ascertained in Step 1.

The relief is A less B. Where B equals or exceeds A, no relief is due, 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 16 certificates, and no earlier assessment is reopened or revised: those years are recomputed only on paper, inside the Form 39 working, and the whole relief is claimed in the year of receipt.

Worked example on the tax year 2026-27 rate table

Take a central government employee taxed under the default regime throughout, who receives Rs. 3,00,000 of pay and dearness allowance arrears in tax year 2026-27, the whole of which relates to the financial year 2025-26. The employee’s total income excluding the arrears is Rs. 16,00,000 in the year of receipt and was Rs. 14,00,000 in the earlier year. No surcharge arises at either level, since surcharge starts above Rs. 50 lakh, and the 4% cess applies to both.

The year of receipt is charged on the seven-band table in Section 202(1): nil up to Rs. 4,00,000, 5% from Rs. 4,00,001 to Rs. 8,00,000, 10% to Rs. 12,00,000, 15% to Rs. 16,00,000, 20% to Rs. 20,00,000, 25% to Rs. 24,00,000 and 30% above that. The earlier year is charged on the identical table in Section 115BAC(1A)(iii) of the Income-tax Act, 1961, inserted by the Finance Act, 2025 for the assessment year beginning 1 April 2026, which the Finance Act, 2026 left unchanged.

The relief is Rs. 10,400, and the reason is visible in the bands. Received in tax year 2026-27, the whole Rs. 3,00,000 sat between Rs. 16,00,000 and Rs. 19,00,000, which is the 20% band. Received on time in the financial year 2025-26, Rs. 2,00,000 of it would have sat in the 15% band and only Rs. 1,00,000 in the 20% band. The relief is the 5% difference on Rs. 2,00,000, which is Rs. 10,000, plus the 4% cess on that, which is Rs. 400.

Two variations change the answer completely. Had the employee’s income in the earlier year also been Rs. 16,00,000, the arrears would have fallen in the 20% band in both years, A would have equalled B, and the relief would have been nil. And where an earlier year’s total income including its share of the arrears stays at or below Rs. 12,00,000, the rebate under Section 156(2)(a) of Rs. 60,000 or 100% of the tax, whichever is less, wipes that year’s tax out, E comes to nil for that year, and the relief is the whole of A. The rebate cuts the other way too: where the arrears push an earlier year past Rs. 12,00,000 and cost it a rebate it would otherwise have had, E for that year swells and can extinguish the relief altogether.

Form No. 39 and its deadline

Rule 73(3) requires the assessee, to claim relief under Section 157(1), to furnish the particulars specified in Form No. 39 on or before the due date specified under Section 263(1)(c). That due date is set by the Table in Section 263(1)(c) as substituted by Act No. 4 of 2026: serial 4 covers any other assessee and fixes 31 July of the financial year succeeding the relevant tax year. A salaried employee or a pensioner claiming relief for tax year 2026-27 therefore has until 31 July 2027.

The rule fixes a deadline, not a sequence. It does not say the form must reach the department before the return, which is a change of wording from the old practice on Form 10E. The practical order is still to furnish Form 39 first, for a reason found in the processing provision rather than in rule 73.

Section 270(1) requires a return furnished under Section 263 to be processed after adjustment for, among other things, an incorrect claim apparent from any information in the return under Section 270(1)(a)(ii). Section 270(1)(c)(iv) gives credit for any rebate or relief allowable under Chapter IX, where Section 157 sits. A relief claimed in the return with no Form 39 on record is a claim the department has nothing to verify against, and Section 270(1)(d) sends an intimation specifying the sum then determined to be payable. Furnishing the form first removes the question.

Relief through the drawing and disbursing officer

A serving employee does not have to wait for the return. Rule 73(4) allows an assessee who is a Government servant, or an employee in a company, co-operative society, local authority, university, institution, association or body, and who is entitled to relief under Section 157(1), to furnish the Form No. 39 particulars to the person responsible for making the payment referred to in Section 392(1). That person is the drawing and disbursing officer or the pension-disbursing bank.

Section 392(4)(a)(ii) closes the loop from the other side. It requires the person responsible for paying salary to take into account any relief allowable under Section 157, among the particulars an assessee may furnish, for the purpose of making the deduction under Section 392(1), and provides that such particulars have the effect of increasing or decreasing the tax to be deducted. The relief then shows up inside the monthly deduction of tax at source rather than as a refund claimed a year later.

Gratuity, termination compensation and commutation of pension

Entries 2 to 5 of the rule 73 Table use a different method from entry 1. Instead of splitting a sum across the years it relates to, they compare the average rate of tax in the year of receipt against the average of the average rates for the preceding years, each of those years being loaded with a fraction of the receipt.

Gratuity for past service of five years or more but less than fifteen years falls in entry 2. The relief is the gratuity multiplied by the excess of R1 over RAvg, where R1 is the average rate of tax on the total income including the gratuity in the year of receipt, and RAvg is the mean of the average rates for the two immediately preceding tax years, each computed on that year’s total income increased by one-half of the gratuity.

Gratuity for past service of not less than fifteen years falls in entry 3, which extends the same construction over three preceding years, with one-third of the gratuity added to each and RAvg taken as the mean of those three average rates.

Compensation on termination of employment falls in entry 4, and reaches only compensation received after continuous service of not less than three years where the unexpired portion of the term of employment is also not less than three years. It uses the three-year, one-third construction of entry 3.

Commutation of pension falls in entry 5, on the same three-year, one-third construction, applied to the amount of the commutation.

These routes rarely produce anything for a central government employee, and the reason is that the underlying receipts are usually not taxable in the first place. The death-cum-retirement gratuity is deductible in full under Section 19(1) (Table: Sl. No. 3), and a payment in commutation of pension under the Civil Pensions (Commutation) Rules is deductible in full under serial 7 of the same Table. Only a balance surviving those deductions can reach rule 73. The gratuity and commutation of pension articles set out the deductions themselves.

The bar in Section 157(2)

Section 157(2) states that no relief shall be granted on any income on which a deduction has been claimed by the assessee in Section 19(1) (Table: Sl. No. 12) for any amount mentioned therein, for that or any other tax year. Serial 12 is the deduction for an amount received or receivable on voluntary retirement or termination of service under a scheme of voluntary retirement.

The bar is wider than it first looks in two ways. It is not confined to the year of the claim, since the words are “for such, or any other, tax year”. And it attaches to the income, not to the taxpayer, so an employee who took the serial 12 deduction on a voluntary retirement payment cannot come back and seek Section 157 relief on the same money by another route. Anyone considering voluntary retirement with a large one-time payment has to choose between the two, not stack them.

Relief under the default and the optional regime

Section 157 works on tax computed rather than on income, so it is regime-neutral. It applies where the total income is assessed at a higher rate than it otherwise would have been, whether that rate came from the default table in Section 202(1) or from the optional regime an assessee entered under Section 202(4).

Each year in the computation carries its own law. The tax at Step 2 is the tax of the year of receipt under the rates and the regime that applied to it; the tax at Step 3 is the tax of each earlier year under the rates and the regime that applied to that year. An employee taxed under the old regime in the earlier years and under the default regime now cannot recompute those years on the wider bands, and one Form 39 carrying two different regimes across two different years is correct rather than an error.

The widening of the default bands by the Finance Act, 2025 has made the relief smaller for many employees, and this deserves stating plainly because it runs against the intuition that a bigger arrear means a bigger relief. The bands from Rs. 12,00,000 upward now run in blocks of Rs. 4,00,000 with rates rising 15%, 20%, 25% and 30%, so a Rs. 3,00,000 arrear frequently sits inside one band in both years and produces nothing. The tighter table that applied to the financial year 2024-25 reached 30% at Rs. 15,00,000, so an arrear relating to that year can carry a higher notional tax in the earlier year than it carries in the year of receipt, which drives B above A and the relief to nil. The income tax slabs for the assessment year 2027-28 article carries the current table in full.

Arrears received before 1 April 2026

The Income-tax Act, 1961 was repealed by Section 536(1) of the Income-tax Act, 2025 with effect from 1 April 2026, but Section 536(2)(c) keeps it applying to any proceeding in respect of a tax year beginning before that date, including notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals, and requires such proceedings to follow the procedure in the repealed Act.

For the financial year 2025-26 and earlier, therefore, the provision is Section 89(1) of the Income-tax Act, 1961, the computation is Rule 21A of the Income-tax Rules, 1962, and the statement is Form 10E prescribed under Rule 21AA. That remains true of a belated return, a revised return or a rectification for those years filed during 2026 or later. The how to fill Form 10E guide covers that filing.

The old numbering maps onto the new one without changing substance. Rule 21A(2) on arrears or advance of salary and arrears of family pension corresponds to entry 1 of the rule 73 Table, Rule 21A(3) on gratuity to entries 2 and 3, Rule 21A(4) on termination compensation to entry 4, Rule 21A(5) on commuted pension to entry 5, and Rule 21A(6) on other cases to rule 73(2). What changed is the drafting, not the outcome: the six-step arithmetic of Rule 21A(2) became the four-step A and B construction of entry 1, and the bar that Section 89 wrote by reference to the Section 10(10C) exemption is now written by reference to the Section 19(1) (Table: Sl. No. 12) deduction.

A claim can straddle the change, and often will. Arrears received in tax year 2026-27 that relate to the financial years 2024-25 and 2025-26 are claimed under Section 157 on Form 39, because the year of receipt governs the claim, while the Step 3 tax for each earlier year is computed under the law that applied to that year. The Income-tax Act 2025 article sets out the wider renumbering.

Common mistakes

The relief is lost or miscomputed for a short list of reasons, each avoidable.

• Claiming the relief in the return with no Form 39 furnished. The claim is then unverifiable at processing and Section 270(1)(d) issues an intimation. The remedy is to furnish the form and have the processing corrected, but the deadline in rule 73(3) is 31 July of the following financial year and it does not extend.
• Splitting the arrears by guesswork. Step 1 requires the amount relating to each tax year to be ascertained, not estimated. A dearness allowance arrear covers specific months and a pay commission arrear covers the period from the effective date, both of which the drawing and disbursing officer’s arrear statement records.
• Recomputing the earlier years at the year-of-receipt rates. Step 3 uses each earlier year’s own rates, rebate and regime. Applying the Section 202(1) table to the financial year 2024-25 overstates the relief.
• Expecting relief where the bands did not move. Rule 73 gives relief only where A exceeds B. An employee inside one band across all the years concerned gets nothing.
• Double-counting the arrears. The Form 16 for the year of receipt already carries the arrears inside taxable salary, so the return does not add them again. The relief operates on that combined figure.
• Stacking the relief on a voluntary retirement payment. Section 157(2) bars relief on income for which the Section 19(1) (Table: Sl. No. 12) deduction has been claimed, in that or any other tax year.

Related Articles

• Income-tax Act 2025
• Section 202, the new regime under the Income-tax Act 2025
• Section 115BAC and the default new regime
• Section 87A rebate
• Marginal relief in income tax
• Health and education cess
• How to fill Form 10E
• TDS on salary
• Advance tax
• Old vs new tax regime
• Old tax regime
• New tax regime
• Income tax for government employees
• Income tax for pensioners
• Income tax slabs for assessment year 2027-28
• Income tax calculator: old vs new regime
• Standard deduction
• Rebate, deduction and exemption compared
• Form 16
• Form 26AS
• Income-tax officer
• Dearness allowance
• DA arrears calculator
• Dearness relief
• Pension arrears
• 7th Central Pay Commission
• 8th Central Pay Commission
• Central Pay Commission
• Pay fixation
• Modified Assured Career Progression
• Annual increment
• Pay matrix
• Fitment factor
• Interim relief
• Central government pension
• Family pension
• Dual family pension
• Commutation of pension
• Gratuity for central government employees
• Voluntary retirement
• Old Pension Scheme
• National Pension System
• Unified Pension Scheme
• Professional tax
• Take-home salary for central government employees
• Central government employees in India
• Drawing and disbursing officer
• Concordance table

External references

• Income Tax Department e-filing portal
• Income Tax Department, Acts and Rules
• Department of Expenditure
• Department of Personnel and Training
• Department of Pension and Pensioners’ Welfare
• Central Pension Accounting Office

References

1. Income-tax Act, 2025 (Act No. 30 of 2025), in force 1 April 2026, Section 157: sub-section (1)(a) to (d) listing arrear or advance salary, salary for more than twelve months in one tax year, profits in lieu of salary under Section 18(1) and arrears of family pension as defined in Section 93(1)(d); sub-section (2) barring relief on income for which a deduction under Section 19(1) (Table: Sl. No. 12) has been claimed.
2. Income-tax Rules, 2026, rule 73, headed relief under section 157(1) when salary is paid in arrears or in advance, gratuity, etc.: the Table at rule 73(1) with entries 1 to 5, rule 73(2) on other receipts, rule 73(3) prescribing Form No. 39 and the due date, and rule 73(4) on furnishing the particulars to the payer.
3. Income-tax Act, 2025, Section 263(1)(c) and its Table as substituted by Act No. 4 of 2026, serial 4 fixing 31 July of the financial year succeeding the relevant tax year as the due date for any other assessee.
4. Income-tax Act, 2025, Section 392(1) and Section 392(4)(a)(ii), on deduction of tax from salary and on taking Section 157 relief into account when making that deduction.
5. Income-tax Act, 2025, Section 270(1)(a)(ii), (1)(c)(iv) and (1)(d), on processing a return, adjustment for an incorrect claim apparent from the return, credit for relief allowable under Chapter IX, and the intimation.
6. Income-tax Act, 2025, Section 202(1) Table (seven bands from nil up to Rs. 4,00,000 to 30% above Rs. 24,00,000) and Section 156(2)(a) and (b) (rebate of Rs. 60,000 up to a total income of Rs. 12,00,000, and marginal relief above it).
7. Income-tax Act, 2025, Section 19(1) Table: serial 3 (death-cum-retirement gratuity, entire amount), serial 7 (payment in commutation of pension under the Civil Pensions (Commutation) Rules, entire amount) and serial 12 (voluntary retirement or termination compensation).
8. Income-tax Act, 2025, Section 536(1) repealing the Income-tax Act, 1961 with effect from 1 April 2026, and Section 536(2)(c) continuing the repealed Act for any tax year beginning before that date.
9. Income-tax Act, 1961, Section 89(1), and Income-tax Rules, 1962, Rule 21A (sub-rules (2) to (6)) and Rule 21AA prescribing Form 10E, which govern a financial year 2025-26 or earlier claim.
10. Income-tax Act, 1961, Section 115BAC(1A)(iii), the rate table for any previous year relevant to the assessment year beginning on or after 1 April 2026, inserted by the Finance Act, 2025.