Section 89 Relief for Salary Arrears: Calculation & Filing Process
- PRITI SIRDESHMUKH
- 22 hours ago
- 8 min read
When salary arrears are paid in a lump sum, the sudden jump in income often pushes a taxpayer into a higher tax slab, resulting in an unfair tax burden. Section 89 of the Income Tax Act helps correct this imbalance by allowing tax relief on arrears and advance salary through a year-wise comparison of tax liability. The provision ensures that income meant for earlier years is not taxed at today’s higher rates. With many employers issuing arrears after pay revisions or settlements, understanding Section 89 becomes crucial. Platforms like TaxBuddy simplify this process through automated calculations and guided Form 10E filing.
Table of Contents
How Section 89 Relief for Salary Arrears Works
Salary arrears add a sudden spike to annual income, often pushing the taxpayer into a higher slab even though the arrear amount belongs to earlier years. Section 89 corrects this mismatch by recalculating tax twice—first for the year of receipt and then for the years to which the arrears belong. The tax difference from these two sets of calculations determines the relief amount. The idea is simple: tax should be paid based on the applicable slab rates of the year the income truly belongs to. By aligning the arrear income with earlier years, Section 89 ensures a fairer tax outcome.
Is Section 89 Relief Allowed in the New Tax Regime?
The new tax regime under Section 115BAC does not provide deductions or exemptions that apply specifically to income components. However, Section 89 relief is still available because it is not a deduction; it is a tax-recomputation mechanism. Since the objective of Section 89 is to neutralize the spike caused by arrears, taxpayers opting for the new regime can also claim this relief. The only mandatory requirement remains the filing of Form 10E before submitting the income tax return for that financial year.
How Section 89 Relief Works in the Old Tax Regime
Under the old regime, Section 89 relief functions identically, but the slab rates and tax relief amounts tend to differ due to additional deductions and exemptions permitted. Since arrears are often linked to salary components where deductions such as HRA, standard deduction, and Section 80C affect taxable income, the old regime sometimes produces a more favorable relief outcome. Tax calculations for earlier years must be performed using the exact slab rates and rules applicable for those years. This year-wise restructuring ensures that tax is computed on the original tax base of each historical year.
Detailed Calculation of Section 89 Relief for Salary Arrears
The computation requires a five-part comparison across the year of receipt versus the years to which the arrears belong:
Compute tax on current year income including arrears.
Compute tax for the current year without arrears.
Identify the extra tax caused by including arrears (difference between steps 1 and 2).
For each year to which arrears relate, compute tax ignoring arrears.
Compute tax for each of those earlier years after adding arrears.
Identify the additional tax those years would have generated due to arrears.
Relief equals the difference between extra tax in the year of receipt and extra tax in earlier years.
If the earlier-year tax addition exceeds the current-year addition, no relief is granted. Platforms like TaxBuddy automate this entire calculation, reducing the risk of manual errors.
Filing Process for Section 89 Relief (Form 10E and ITR)
To claim the relief, Form 10E must be submitted online before filing the income tax return. This form contains details of the arrear components, historical income breakdowns, and year-wise tax comparison. After e-filing Form 10E, the income tax return is filed as usual while claiming the relief amount under the relevant salary schedule. Not submitting Form 10E results in automatic denial of relief, and taxpayers may receive a notice disallowing the claim. TaxBuddy’s guided workflow ensures Form 10E is completed accurately before ITR submission.
Documents Required for Claiming Section 89 Relief
Essential documents include employer-issued salary slips, arrear computation sheets, and Form 16 (particularly Part B, which shows arrears separately). It is important to maintain historical salary information for each year impacted by arrears. Employer certificates confirming the specific period of arrear payment also help validate calculations. These documents are not physically submitted with the return but must be retained for record-keeping and compliance.
Common Errors While Claiming Relief Under Section 89
Errors often occur due to incorrect year-wise calculations, omission of Form 10E, or wrong categorisation of arrears. Some taxpayers mistakenly report arrears in the wrong year, leading to mismatches in AIS or Form 26AS. Another frequent issue is selecting incorrect tax slab rates applicable to previous years. Filing the ITR first and then submitting Form 10E also leads to relief denial. Platforms like TaxBuddy flag such inconsistencies early to avoid delays or notices from the department.
How TaxBuddy Helps in Claiming Section 89 Relief
TaxBuddy automates the most complex parts of Section 89, particularly the multi-year tax comparison required for relief calculation. Its system reads Form 16, identifies arrear components, and computes the relief in line with historical slab rates. It also guides users through Form 10E, ensuring accuracy before ITR submission. TaxBuddy’s dashboard reduces the risk of arithmetic errors and offers expert validation when salary arrears involve multiple years or employer corrections.
Impact of Incorrect Bank Account Details on Section 89 Relief
Bank account inaccuracies do not impact the relief calculation but can affect refund processing. Refunds may fail or be delayed if incorrect account numbers or unvalidated bank accounts are listed in the e-filing profile. The account must be linked to PAN and validated on the portal. TaxBuddy regularly reminds users to verify bank details before filing, ensuring refunds linked to relief claims reach the correct account without manual intervention.
Section 89 Relief for Advance Salary and Gratuity
Advance salary follows the same relief mechanism as arrears since the principle of year-wise tax alignment remains relevant. For gratuity relating to past years of service, Section 89 can also be applied to prevent excessive tax when the lump sum shifts the taxpayer into a higher slab. Relief for gratuity typically requires additional documentation specifying the service period and the computation method used by the employer.
Section 89 Relief vs Other Salary-Related Deductions
Section 89 relief differs from deductions such as standard deduction, HRA, or 80C benefits because it does not reduce income, only tax. It realigns tax liability across years, whereas deductions reduce taxable income for the current year. Section 89 applies specifically to arrears, advance salary, gratuity, and other past-year salary components where delayed receipt distorts the tax burden. Since it is a tax-recomputation mechanism, it operates independently of deductions under either tax regime.
Conclusion
Section 89 plays a critical role in ensuring that taxpayers are not penalised due to delayed or advanced salary payments. Accurate filing of Form 10E and correct year-wise computation are essential to receive the relief. Digital platforms simplify this process by automating calculations and reducing errors. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides both types of filing options to suit different tax profiles. The self-filing option is designed for individuals with straightforward income sources, offering AI-assisted prefill, automated error detection, and guided prompts throughout the return. For taxpayers with arrears, relief under Section 89, multiple salary components, business income, capital gains, or deductions spread across years, the expert-assisted plan ensures every detail is reviewed by a qualified tax professional. This includes verification of Form 10E, arrear year-wise computations, and any corrections needed for consistent reporting across AIS, Form 26AS, and Form 16.
Q2. Which is the best site to file ITR? The government’s income tax portal remains the official and mandatory platform for all submissions. However, taxpayers looking for smoother processing, reduced errors, and automation-driven filing prefer TaxBuddy. Its system reads Form 16, matches AIS and TIS data, performs year-wise comparisons for Section 89 relief, and highlights discrepancies before filing. This ensures the return is filed correctly on the first attempt, lowering the chances of notices or mismatches.
Q3. Where to file an income tax return? An income tax return can be filed through the government’s portal (incometax.gov.in) or via authorised platforms that integrate with the portal. TaxBuddy enables a guided filing experience by combining automation with expert review. The final return is still submitted on the government’s system, but all the preparation—from Form 10E to relief calculations and accuracy checks—is handled on the TaxBuddy platform.
Q4. Is filing Form 10E compulsory for claiming Section 89 relief? Yes. Form 10E is mandatory for claiming relief on salary arrears or advance salary. Without filing this form, the Income Tax Department automatically denies the relief claim, even if arrears are correctly reported in the ITR. The form must be filed before the return, and a mismatch can trigger a notice. TaxBuddy ensures this step is completed accurately to avoid rejection.
Q5. What happens if Form 10E is not filed before the ITR? If Form 10E is missing, the relief claim under Section 89 is disallowed, and the taxpayer may receive an intimation under Section 143(1) adjusting the tax payable. In such cases, the taxpayer must file an updated return or respond through rectification, depending on eligibility. Filing Form 10E correctly at the start avoids these complications altogether.
Q6. Can Section 89 relief be claimed without Form 16? Yes. Relief can be claimed even without Form 16, provided the taxpayer maintains accurate salary records, payslips, and an arrears breakup from the employer. Form 10BA, historical income data, or employer-issued letters can also help reconstruct the year-wise tax split. TaxBuddy helps recreate these computations and validates figures to ensure the claim meets compliance requirements.
Q7. Is bank account validation required before claiming Section 89 relief? Bank account validation is not mandatory for the relief calculation, but is crucial for refund processing. If the account is not validated, refunds may be delayed or fail. Since arrear relief often reduces tax liability or results in excess tax paid, validating the bank account ensures timely credit of any refund generated after processing.
Q8. Can Section 89 relief be claimed if arrears were credited to a joint bank account? Yes. Relief is based on the PAN of the taxpayer, not the type of bank account. Even if salary or arrears were received in a joint account, the taxpayer who reports the income in their ITR is eligible for relief, provided the bank account is linked to their PAN and validated on the portal.
Q9. Can Section 89 relief be claimed under the new tax regime? Yes. The new regime does not restrict Section 89 relief because the relief mechanism adjusts tax year-wise and does not fall under deductions or exemptions. Whether opting for the old or new regime, the taxpayer can apply for Section 89 relief as long as Form 10E is filed.
Q10. Does Section 89 apply to advance salary or gratuity? Yes. Section 89 is designed to handle income relating to previous service periods or future service periods where timing impacts tax burden. Advance salary, family pension arrears, and gratuity linked to past service years can all qualify for relief. Correct allocation across relevant years is essential to prevent over-taxation.
Q11. Can Section 89 relief be claimed for multiple arrear years at once? Yes. If arrears relate to more than one previous year, the comparison must be performed separately for each of those years. The relief for all applicable years is then added together. TaxBuddy’s automated computation makes this simpler by applying the correct slab rates for each historical year.
Q12. Will claiming Section 89 relief increase the chances of receiving a tax notice? Claiming relief does not increase the likelihood of a notice when calculations are accurate and Form 10E is filed properly. Notices generally arise from mismatches, missing forms, incorrect year-wise allocation, or discrepancies in AIS vs salary data. A correctly filed relief claim with accurate computations and verified documents reduces compliance risks significantly. TaxBuddy’s expert review further minimises the chance of inconsistencies.
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