Did you receive a salary hike or pending dues from earlier years this year? Wondering why your tax bill suddenly looks too high? You're not alone. Many employees—both in the government and private sectors—find themselves confused when arrears hit their salary. Fortunately, the Income Tax Act has a solution: Relief under Section 89(1). To claim it, you need to file Form 10E.
Think of this relief as a tax-time "time machine." It helps you recalculate your income as if you had earned it in the right year, not all at once.
In this guide, we’ll walk you through how to calculate income tax arrears relief under Section 89(1) using Form 10E for the F.Y. 2025-26, step by step, in plain English.
Table of Contents
| Sr# | Headings |
| 1 | What is Income Tax Arrears? |
| 2 | Why Arrears Lead to Higher Tax? |
| 3 | What is Section 89(1) Relief? |
| 4 | What is Form 10E, and why is it Mandatory? |
| 5 | When Should You Use Form 10E? |
| 6 | Step-by-Step: How to Calculate Relief under Section 89(1) |
| 7 | Documents Needed to Fill Form 10E |
| 8 | Detailed Example of Tax Relief Calculation |
| 9 | Online Filing of Form 10E on Income Tax Portal |
| 10 | Key Tips While Filing Form 10E |
| 11 | Common Mistakes to Avoid |
| 12 | What Happens If You Don’t File Form 10E? |
| 13 | Can You File Form 10E Without a CA? |
| 14 | New Tax Regime vs Old Tax Regime and Section 89(1) |
| 15 | Final Thoughts on Smart Tax Planning |
1. What are Income Tax Arrears?
Income tax arrears are dues or pending salaries from a previous financial year that you receive in the current year. These may include promotions, bonuses, DA revisions, or court orders. They get added to your current year’s income, potentially bumping you into a higher tax slab.
2. Why Arrears Lead to Higher Tax?
When all your pending income is received in one go, it looks like you're earning more this year. But in reality, it was spread over the past years. So, without relief, you might pay more tax than you should. That’s where Section 89(1) steps in.
3. What is Section 89(1) Relief?
Section 89(1) offers tax relief by allowing you to recalculate your total income by apportioning the arrears to the year they actually belonged to. Then, you pay tax as if you earned that amount back then, and the difference becomes your relief.
4. What is Form 10E, and why is it Mandatory?
Form 10E is the official form you must submit to claim relief under Section 89(1). If you skip it, your claim for relief can be rejected—even if you’re eligible. This form tells the Income Tax Department exactly how you calculated your relief.
5. When Should You Use Form 10E?
You should use Form 10E if you’ve received arrears of salary, pension, or gratuity that pertain to previous financial years but are paid in the current one. For F.Y. 2025-26, use it if you received payments for past years like 2022-23 or 2023-24.
6. Step-by-Step: How to Calculate Relief under Section 89(1)
Here's a simple approach:
- Calculate total income (including arrears) for F.Y. 2025-26.
- Compute tax on this total income.
- Deduct the arrears from this year’s income.
- Add the arrears back to the year they pertain to (say F.Y. 2023-24).
- Re-compute tax for F.Y. 2023-24 (with and without arrears).
- Find the difference between both two year-wise tax impacts.
- The relief is the excess tax due to arrears.
7. Documents Needed to Fill Form 10E
- Salary slips showing arrears
- Previous years’ Form 16
- Current year Form 16
- Income breakup of arrears
- PAN and login credentials for the Income Tax Portal
8. Detailed Example of Tax Relief Calculation
Let’s say you got ₹1,00,000 arrears for F.Y. 2023-24, paid in F.Y. 2025-26:
- Without Section 89(1), your tax for 2025-26 increases sharply.
- With Section 89(1), you:
- Re-calculate 2023-24 income by adding ₹1,00,000Find the extra tax payable back then compare it with the current year's tax hike
- Relief = Current year extra tax - Previous year extra tax
If your 2025-26 tax increased by ₹20,000 and 2023-24 would’ve increased by ₹12,000, then:
Relief = ₹20,000 - ₹12,000 = ₹8,000
9. Online Filing of Form 10E on Income Tax Portal
- Log in to https://www.incometax.gov.in
- Go to e-file → Income Tax Forms → File Income Tax Forms
- Select Form 10E
- Fill in all sections—especially 'Annexure-I' for salary arrears
- Submit before filing ITR
10. Key Tips While Filing Form 10E
- File Form 10E before filing your ITR
- Cross-check tax calculations
- Save all computation records
- Use the correct financial years while breaking arrears
11. Common Mistakes to Avoid
- Filing Form 10E after ITR—invalid relief
- Wrong breakup of arrears
- Skipping the previous year's tax re-computation
- Not keeping proof of salary details
12. What Happens If You Don’t File Form 10E?
If you claim relief but forget to submit Form 10E, the Income Tax Department will disallow your relief. You may receive a tax demand notice with interest and a penalty.
13. Can You File Form 10E Without a CA?
Yes! The form is straightforward. If you understand basic calculations, you can file it yourself. Use Excel calculators or income tax software tools to assist you.
14. New Tax Regime vs Old Tax Regime and Section 89(1)
Under the New Tax Regime, Section 89(1) relief is not available. So, if you want to claim arrear relief, you must file under the Old Regime.
15. Final Thoughts on Smart Tax Planning
Receiving arrears shouldn’t become a tax burden. With Section 89(1) and Form 10E, the law ensures you pay tax fairly. Think of it like using a rewind button on your tax timeline—smart, fair, and simple.
FAQs
1. Is Form 10E mandatory to claim tax relief on arrears?
Yes, without Form 10E, your relief under Section 89(1) can be rejected.
2. Can I file Form 10E after submitting my ITR?
No. Always file Form 10E before filing your Income Tax Return.
3. Does the new tax regime allow Section 89(1) relief?
No, Section 89(1) relief is only available under the old tax regime.
4. Can pensioners also claim relief using Form 10E?
Yes, pensioners receiving arrears can also file Form 10E for relief.
5. Where can I download an Excel calculator for 89(1) relief?
You can find several downloadable Excel tools from the link below.
Download Automatic Income tax Arrears Relief Calculator U/s 89(1) with Form 10E in Excel Format from the F.Y. 2000-01 to F.Y.2025-26
