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Section 89 relief and Form 10E — now Section 157 and Form 39

If your settlement includes arrears, gratuity, commuted pension or qualifying compensation on termination, you may be paying more tax than you owe. Here is the relief, which form applies to your year, and the step you must take before filing.

Quick Answer

How do I claim tax relief on salary arrears?

Section 89(1) stops you being taxed more heavily just because money arrived late. It compares the extra tax the arrears cost you this year against what they would have cost had they been taxed in the years they were earned, and refunds the difference.

The step that catches people out: Form 10E must be filed online before you file your return. Claim the relief in your ITR without filing Form 10E first and the department will normally disallow it and issue a notice. The form is free and takes minutes — but the order is not optional.

Estimated time
5 minutes, once you have your tax figures
Cost / impact
Free · no signup · runs in your browser
What you need
Tax computed with and without arrears, for each year

Which form do you file?

The law changed on 1 April 2026. Which form you need depends on the year the money is taxed, not on today's date.

Which year did you receive the payment in?

You need

Form 10E

Relief under Section 89(1) of the Income-tax Act, 1961

Form 10E must be filed before the return for the year the arrears were received.

The arithmetic is the same under both. Section 157(1) carries forward what section 89(1) did — it is a renumbering and a new form, not a new calculation. The relief is still the extra tax the lump sum cost you this year, less what it would have cost spread across the years it relates to.

Do not file the wrong one. A belated or revised return for FY 2025-26 or earlier still needs Form 10E, even if you are filing it in 2027.

Payments that can qualify for relief

  • Salary received in arrears
  • Salary received in advance
  • Gratuity
  • Compensation on termination, including severance or retrenchment compensation — only after 3+ years' continuous service with 3+ years of the term unexpired
  • Commutation of pension

It is not only salary arrears. Gratuity and commuted pension are named, and compensation on termination — including a severance, ex-gratia or retrenchment payment — can qualify (Income-tax Act 2025, s.157(1)(c) with s.18(1)(a)), but only after at least three years' continuous service and where at least three years of the employment term were still to run (Rule 73). With open-ended employment, have it reviewed. Each payment has its own method, and the calculator below does the arrears method only.

Section 89 relief calculator (Form 10E)

Arrears or advance salary: the four figures Form 10E asks for, and the relief they produce

You need four tax figures to use this. Compute your tax twice for the year you received the arrears — once with them and once without — and twice for each earlier year the arrears relate to. Your Form 16, your last return, or any tax calculator will give you these.

The year you received the arrears

The years the arrears relate to

One row per financial year. Split the arrears across the years they were actually earned in — that split is what Form 10E Annexure I asks for.

Key takeaways

  • →Relief = extra tax caused this year − extra tax the arrears would have caused when earned.
  • →File Form 10E on the income tax portal BEFORE your ITR, or the claim gets disallowed.
  • →You need four tax computations minimum: two for the receipt year, two per earlier year.
  • →Not just arrears: gratuity, commuted pension and compensation on termination can qualify too — the last only after three years' service with at least three years of the term still to run (Rule 73).
  • →This calculator does the arrears and advance-salary method only. Gratuity, termination compensation and pension use separate formulas.
  • →Which form depends on the year — Form 10E for AY 2026-27 and earlier, Form 39 from Tax Year 2026-27.
  • →No relief arising is a valid answer — it means the lump sum did not push you into a higher band.

Why the relief exists

Indian income tax is progressive, so the rate you pay rises as your income does. That is fine when income arrives evenly. It stops being fair when three years of withheld increments land in a single year, pushing income that would have been taxed at a lower slab into a higher one purely because of when it was paid.

Section 89(1) corrects that. It does not make the arrears tax-free — you still pay tax on the money. It just ensures the rate reflects when the income was earned rather than when your employer got round to paying it.

A = tax this year WITH arrears − tax this year WITHOUT arrears

B = tax in earlier years WITH arrears − tax in those years WITHOUT

relief = A − B (when positive)

A worked example

Sunita receives ₹6,00,000 of arrears in 2026-27, all relating to 2024-25. Her tax computations come out as follows:

Worked Section 89 relief computation
YearTax without arrearsTax with arrearsDifference
2026-27 (received)₹1,50,000₹3,50,000A = ₹2,00,000
2024-25 (earned)₹40,000₹90,000B = ₹50,000

Relief = ₹2,00,000 − ₹50,000 = ₹1,50,000. She deducts that from her tax payable for 2026-27 — but only after filing Form 39. Tax Year 2026-27 is the first year under section 157 of the Income-tax Act 2025, so Form 10E is the wrong form for it; had she received the arrears in FY 2025-26, the same figures would go on Form 10E.

How to file Form 10E (FY 2025-26 and earlier)

For money received in Tax Year 2026-27 or later, pick Form 39 from the same Income Tax Forms list instead and follow the same order: the form first, then the return.

  1. 1Log in to the income tax e-filing portal. Use your PAN credentials at incometax.gov.in.
  2. 2Go to e-File → Income Tax Forms → File Income Tax Forms. Select Form 10E and the assessment year in which you received the arrears.
  3. 3Complete Annexure I. For arrears of salary. Split the arrears across the financial years they relate to, and enter your total income for each of those years with and without them.
  4. 4Submit and e-verify. Keep the acknowledgement. This is your evidence that the form preceded the return.
  5. 5Then file your ITR and claim the relief. Enter the relief figure in the designated field. The order matters — Form 10E first, always.

Filing the ITR first is the mistake that costs people the relief. The department matches the claim against a filed Form 10E; if there is none, the claim is disallowed and you get an intimation. Filing Form 10E afterwards and revising the return can fix it, but only within the window for revision.

Why this calculator asks for tax figures rather than income

A fair question, since most calculators would ask for your salary and produce a number directly. We deliberately do not, and the reason is accuracy.

The correct tax for each year depends on that year's slab rates, which regime applied, the rebate, surcharge and cess in force, and your own deductions and exemptions for that year. Baking one year's slabs into a calculator would produce a confident-looking figure that is wrong for most people and for most years — and on a form the department checks, a wrong number is worse than no number.

What we can do correctly is the differencing, which is exactly what Form 10E Annexure I is. Bring the four tax figures from your Form 16, your earlier returns, or your tax adviser, and this will turn them into the relief and show the working.

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Frequently asked questions

What is Section 89(1) relief?+
Section 89(1) of the Income-tax Act gives relief when you receive salary arrears or advance salary in one year that relate to a different year. Because Indian income tax is progressive, receiving several years of money at once can push you into a higher slab than you would ever have reached had the money arrived on time. The relief refunds that difference — it recalculates your tax as though the arrears had been taxed in the years they were earned, and gives you back the excess.
How is Section 89 relief calculated?+
In two halves. First work out the extra tax the arrears cost you in the year you received them: tax on that year's income including the arrears, less tax excluding them. Then work out what the arrears would have cost had they been taxed in the years they relate to, computed the same way for each year. The relief is the first figure minus the second. If the second is equal to or larger than the first, no relief arises — which is a legitimate outcome, not an error.
Section 89 or Section 157 — which applies in 2026?+
Both, depending on the year. The Income-tax Act 2025 took effect on 1 April 2026 and carries the relief forward as section 157(1), claimed on Form 39 instead of Form 10E. For AY 2026-27 — the return due by 31 July 2026 — the Income Tax Department is explicit that you file Form 10E only. Form 39 applies from Tax Year 2026-27 onward. The test is the year the income is taxed, not the date you file: a belated or revised return for an earlier year still needs Form 10E. The underlying calculation is unchanged between the two.
What is the difference between Form 10E and Form 39?+
Form 10E is the claim form under section 89(1) of the Income-tax Act 1961. Form 39 is its replacement under section 157(1) of the Income-tax Act 2025, filed electronically on the income tax portal by the due date specified under section 263(1)(c). Both ask for the same underlying figures — the arrears split across the years they relate to, and your tax for each of those years with and without them. Filing the wrong form for the year is the same failure as not filing at all: the relief gets disallowed.
Is Form 10E mandatory to claim Section 89 relief?+
Yes, and this is where most claims fail. Form 10E must be filed online on the income tax portal before you file your return. If you claim relief in your ITR without having filed Form 10E first, the department will typically disallow the claim and issue a notice. The form is free, filed electronically, and takes a few minutes — but the sequence matters: Form 10E first, then the ITR.
What information does Form 10E need?+
Annexure I asks you to split the arrears across the financial years they relate to, and for each of those years to state your total income both with and without the arrears attributable to it. You also state your total income for the year of receipt, with and without the arrears. In practice that means four tax computations at minimum — two for the receipt year and two for each earlier year involved. The calculator above does the differencing once you have those figures.
Can I claim Section 89 relief on a settlement or severance payment?+
Possibly, but not automatically. The relief is not limited to salary arrears: it covers salary received in advance or in arrears, gratuity, commutation of pension, and compensation received from your employer at or in connection with the termination of your employment (section 157(1)(c) read with section 18(1)(a) of the Income-tax Act 2025; profits in lieu of salary under section 89(1) of the 1961 Act). For compensation on termination — which is where a severance, ex-gratia or retrenchment payment sits — Rule 73 of the Income-tax Rules 2026 allows relief only after continuous service of at least three years AND where the unexpired portion of the term of employment is also at least three years. An open-ended employment with no fixed term, or a payment whose nature is unclear, needs professional review rather than an assumption that it qualifies. Each category also has its own method: the calculator on this page does the arrears and advance-salary method only, and does not work out the separate gratuity, termination-compensation or pension formulas. Get the components identified separately in writing from your employer — the split is what the form asks for.
What if I forgot to file Form 10E before my return?+
You will usually receive an intimation disallowing the relief. The practical fix is to file Form 10E and then file a revised return, if you are still within the window to do so. Do not simply ignore the notice — the relief is real money and the process for reinstating it is administrative rather than adversarial. If the amounts are significant or the window has closed, take professional advice on your options.
Deepak Middha, Founder of LayoffNext

Written and reviewed by Deepak Middha, Chartered Accountant (ICAI, India) and founder of LayoffNext.

Legal and tax positions last checked 14 September 2026Editorial standards
Deepak Middha, Founder of LayoffNext
Founder of LayoffNext

Deepak Middha is the founder of LayoffNext and a Chartered Accountant (ICAI, India). A U.S. immigrant with nearly 20 years of experience — and 17 years in hedge fund and private equity administration, including as Vice President of Fund Accounting at NAV Fund Administration Group and Associate Director of Private Equity and Real Estate at SS&C Technologies — he builds free, plain-language layoff tools and guides for employees, H-1B workers, and immigrant families.

Updated September 14, 2026
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