Save tax on salary by claiming relief under Section 89 of Indian Income Tax Act.

• If an assessee’s salary is received in arrears, in advance, or includes extra payments like profit in lieu of salary, causing income to be taxed at a higher rate, they can apply for relief. The Assessing Officer will grant relief as per Rule 21A.

Example : If the Central Government sets up a Pay Commission that increases salaries from an earlier date, the extra pay (arrears) is taxed when it is received. But tax relief under section 89 can be claimed for it.

Example: If the Central Government increases HRA in the previous year 2024-25, effective from 1.1.2023, the arrears from 1.1.2023 to 31.3.2024 will be taxed in the year they are received, since they were not due earlier. Relief under section 89 can be claimed in this case too.

• Tax relief is also available for assessees who receive arrears of family pension. Family pension is a monthly payment made by an employer to a deceased employee’s family member.
• No relief is allowed for amounts received on voluntary retirement or separation if the assessee has already claimed exemption under section 10(10C) for the same in any assessment year.

Example how to calculate Section 89 relief on salary ?

Mr. Kohli, had a salary of ₹10,20,000 in the FY year 2024–25. He also received ₹3,45,000 as salary arrears for earlier years, as detailed below.

To compute the relief under section 89 and the tax payable for Mr. Kohli for A.Y. 2025–26, follow these simplified steps:

Step 1: Calculate the tax on current year with arrears and without arrears

Tax payable by Mr Kohli for FY 2024-25 ( Old Regime )

Step 2 : Calculate the tax of years for which arrears relates Including and Excluding Arrears.

Computation of Tax Payable Including arrears and excluding arrears of respective year for which arrears relates ( For the best experience, please view in desktop mode. )

Step 3: Calculate the difference between Tax including and excluding arrears of current year FY 2024-25

Step 4 : Calculate the difference between Tax payable in respective years on arrears

Step 5: Calculate the relief under section 89

Step 3 ₹ 1,07,640 – Step 4 ₹ 92,185 = ₹ 15,455

Step 6 : Calculate the Tax payable in FY 2024-25 after deducting relief under section 89.

Note : The tax calculation for FY 2024-25 (AY 2025-26) in this article is based on the old tax regime for illustrative purposes. If the new tax regime is applied, the difference between Step 3  and Step 4 may result in a negative value, in which case no relief under Section 89 of the Income Tax Act can be claimed. The purpose of this article is to explain the concept and procedure of claiming relief under Section 89, helping taxpayers understand how arrears are taxed.