Section 89(1) of the Income-tax Act gives tax relief to salaried employees when they receive:
* Salary arrears (Past years
* Advance salary
* Salary in lieu of advance
*Family pension arrears
Reason: Arrears increase income in one year and push you into a higher tax slab. Section 89 reduces this extra tax burden.
What is Form 10E
* Form 10E must be filled online on the Income Tax portal before e-filling
* Mandatory to claim Section 89 relief
* Calculation is based on Rule 21A (sometimes people loosely say "Rule89")
*For Simple Example (Salary Arrears)
* Situation:
@ Arrears received in FY 2025-26: Rs:2,00,000
@ Arrears relate to FY 2024-25
Step -1: Tax in year of receipt (FY 2025-26)
Particulars: Amount Rs:
Current year Salary 8,00,000
Arrears received 2,00,000
Total Income: 10,00,000
Tax on Rs: 10,00,000 = Rs: 1,12,500
Tax on Rs: 8,00,000 (without arrears) = Rs: 62500
Extra tax due to arrears = Rs: 50,000
Step -2: Tax if arrears were taxed in correct year (FY 2024-25)
Particulars Amount
Original salary 6,00,000
Arrears 2,00,000
Revised income 8,00,000
Tax on Rs: 8,00,000 = Rs: 62,500/-
Tax on Rs: 6,00,000 = Rs: 22,500/-
Extra tax in past year = Rs: 40,000/-
Step -3: Section 89 relief Calculation
Relief = Extra tax (current year) - Extra tax (past year)
Rs: 50,000 -Rs:40,000= Rs: 10,000/-
Final result Tax payable reduced by Rs: 10,000/-
Marginal Relief and New Income tax regime:
Rs:60,000/-
Under section 87A Marginal relief benefited form
Total Income Rs: 12,75,005 to 13,35,000/- only.
