Section 157, Income-tax Act 2025: Relief when salary, etc., is paid in arrears or in advance

What Section 157 does, and the Section 89 it replaces

Section 157 of the Income-tax Act 2025 gives you relief when pay that belonged to earlier years arrives in a single later year and is taxed at a higher slab than it would have been at the time. It is a straight continuation of Section 89 of the 1961 Act, the provision most people know by its form number, Form 10E. The relief itself, the compare-two-versions arithmetic and the receipts it covers all carry over. What changes is the section number, the form number and the rule behind the form.

The switch is dated, not immediate. Returns for FY 2025-26 (assessment year 2026-27) are filed under the 1961 Act, so they still use Section 89 and Form 10E. Income earned from tax year 2026-27, the first year the 2025 Act governs, uses Section 157 and its new form, Form 39, notified under Rule 73 of the Income-tax Rules 2026. If you are claiming relief on a pay-arrears award in the return you file in 2026, you are on Form 10E; from the 2027 filing season you move to Form 39.

Section number cross-checked against published copies of the enacted Act; the form and rule numbers follow reported copies of the draft rules.†

Why do salary arrears push up your tax?

Because India taxes income in rising slabs, and a lump of back-pay stacks on top of a full year's income instead of spreading across the years it was earned. Each slab is taxed at a higher rate than the one below it, so the same rupees crammed into one year can cross into a 20% or 30% band that they would never have reached had they been paid on time.

Say a pay-commission award gives you ₹4,00,000 of arrears in tax year 2026-27, and ₹2,00,000 of it belonged to each of the two prior years. In those years your income sat inside the 20% band. Dropped into one year on top of ₹9,00,000 of current salary, ₹3,00,000 of that arrear is pushed into the 30% band. The extra 10% on that slice is tax you owe only because of the timing, and it is exactly what Section 157 hands back. The first worked example below runs the full arithmetic to a ₹31,200 relief.

The relief is not a deduction and it does not lower your income. It re-prices the bunched receipt at the rates that would have applied year by year, then refunds the gap. If the arrears never crossed a slab edge, there is nothing to refund, which the second worked example shows.

Which payments qualify for relief under Section 157?

Lump receipts that relate to a different period than the year you got them. Section 157 and the rules under it cover them, and Form 39 gives each of the main ones its own annexure. The receipts that qualify:

• Salary received in arrears (a back-dated pay revision, a pay-commission award, a delayed increment) or salary paid in advance.
• Salary for more than twelve months bunched into one tax year.
• Arrears of family pension, the pension paid to a family member after the employee's death.
• A payment in the nature of profits in lieu of salary, such as certain retrenchment or termination compensation.
• Gratuity for past service, and the commuted (lump-sum) value of a pension, each with its own spreading rule inside the form.

The annexure structure carries over from the old Form 10E (Rule 21A). If you claimed the voluntary-retirement exemption (the old Section 10(10C), now the salary exemption in Section 19(1), Table serial 12) on a sum, you cannot also take Section 157 relief on the same money; Section 157(2) bars the double claim, matching the old Section 89(2).†

Does the relief work under the new tax regime?

Yes. Section 157 relief comes off your tax, not your income, so the new regime's stripping-out of deductions does not touch it. A taxpayer on the default new regime claims arrears relief the same way an old-regime taxpayer does, on Form 39.

What changes across regimes is the arithmetic inside the form, not the right to relief. Each year's tax is recomputed at that year's rates and that year's regime. If you were on the new regime in the year of receipt and in the years the arrears relate to, every step uses new-regime slabs. The relief is still the gap between the bunched tax and the year-by-year tax. The worked examples below use the old regime because its slabs have been stable for years, which keeps the multi-year sum easy to follow, but the method is identical on the new regime.

Relief under Section 157 is a relief from tax rather than a Chapter deduction, so it is not among the items the new regime disallows.†

How is the relief calculated?

By comparing two versions of your extra tax: what the arrears cost you bunched into this year, against what they would have cost spread across their own years. The relief is the first minus the second. Form 39 does the sum once you feed it the year-wise figures. Here is what it is doing.

Five steps, in the order the form follows:

• Work out your tax for the year of receipt including the arrears. Call it A1.
• Work out your tax for the year of receipt excluding the arrears. Call it A2. The extra tax bunching caused this year is A, which is A1 less A2.
• For each earlier year the arrears relate to, work out that year's tax including its slice of the arrears. Call the set B1.
• Work out each earlier year's tax excluding that slice. Call it B2. The extra tax those years would have borne is B, the total of (B1 less B2) across the years.
• Relief under Section 157 is A less B. If A is larger, you claim the difference; if B is equal or larger, the relief is nil and there is nothing to claim.

You need each earlier year's total income to do this. Get the year-wise break-up of the arrears from your employer before you start; the calculators linked below work out each year's tax.

Traps: no form, no slab jump, and the VRS double-claim

The relief is generous but unforgiving on process. A few things quietly cut it to nothing:

• No form before the return: if you claim the relief in your return but have not filed Form 39 (or Form 10E for FY 2025-26) online first, the claim is struck out when the return is processed and a demand can follow. The form is not attached to the return; it is filed separately, and it must exist before you file.
• No slab jump, no relief: relief exists only where the arrears were taxed higher by bunching. If your income sat in the top slab both this year and in the arrear years, A equals B and the relief is zero, however large the arrears.
• Arrears you cannot pin to years: the relief needs each slice tied to the year it relates to. A lump you cannot attribute to identifiable earlier years earns no relief, so keep the employer's year-wise arrears statement.
• The VRS double-claim: taking the voluntary-retirement exemption (Section 19(1), Table 12) and Section 157 relief on the same compensation is barred. Take whichever saves more, not both.
• A reassessed earlier year: the relief rests on the earlier years' figures, so if one of those years is later revised, the relief can change and you may need to revisit the claim.

Your employer can build the relief into your monthly salary TDS if you hand them the year-wise detail, but you still file the form yourself. The two are not substitutes for each other.

How to file Form 39, and Form 10E for FY 2025-26

Both forms are filed online on the income-tax e-filing portal, under your own PAN login, before you file the return for the year you received the arrears. There is no paper route and nothing is attached to the return itself.

You fill the annexure that fits the receipt: Annexure I for salary or family-pension arrears with the year-wise spread, and separate annexures for gratuity, termination compensation and commuted pension. Enter each earlier year's total income and the slice of arrears that belongs to it, and the form computes the relief. Submit it, then carry the relief figure into the relief field of your return.

Two cautions. The form cannot be revised once submitted, so check the year-wise numbers before you send it. And keep your working: the year-wise arrears statement from your employer, your Form 16 and the earlier years' returns are what you produce if the department asks how you reached the figure.

Form 39 is filed under Rule 73 of the Income-tax Rules 2026; Form 10E under Rule 21A of the 1962 Rules. The filing step, before the return, is the same for both.†

What you should actually do about arrears relief

File the form even when the relief looks small. It costs nothing and it is the only thing standing between your claim and a processing demand. On the ₹4,00,000 award in the first example the relief is ₹31,200; even a one-year arrear that nudges ₹1,00,000 from the 20% band into the 30% band is worth ₹10,400 back, more than enough to justify ten minutes on the portal.

Before you file, get the year-wise break-up in writing. Ask your employer or drawing-and-disbursing officer for an arrears statement splitting the award across the years it relates to. Without it you cannot fill Annexure I, and you cannot defend the claim later. This single document is the difference between a clean relief and a denied one.

Check whether a slab edge was actually crossed before you expect much. Run each year's income through the tax calculator with and without its arrear slice. If you were already at 30% in every year, expect a nil result and do not be caught out by it; the second worked example is exactly that case. Where you have any say over timing, a discretionary bonus or an advance for instance, pulling it into a year that keeps you inside a lower band beats claiming relief after the fact.

Do not skip the relief because you are on the new regime. It works there too, and for a mid-slab salary a single pay-commission award can hand back ₹30,000 to ₹40,000, as the first and third worked examples show.

Worked examples

Section 157 FAQs

Related