In 2025, I received some arrears of salary from my employer for previous years. I am not sure how these arrears are taxed in India—do I need to add the full amount to my current year’s income, and is there any relief available under the Income Tax Act?
salary arrears often come after a pay revision or delayed increments, and the sudden lump sum can push you into a higher tax bracket if you’re not careful.
How Arrears of Salary Are Taxed:
Arrears received in 2025 are taxed in the year of receipt (i.e., AY 2025–26), even though they relate to earlier years.
So yes, the full arrears are added to your current year’s income under the head “Income from Salary.
Relief Under Section 89(1) :
• To prevent unfair tax burden, the Income Tax Act allows you to claim relief under Section 89(1).
• This relief ensures arrears are taxed as if they were spread out in the years to which they actually belong.
• You don’t pay extra tax just because the arrears came in one shot.
What You Need to Do:
1. Calculate Tax With and Without Arrears:
• Compute tax for the current year including arrears.
• Compute tax for the relevant past years as if arrears were received then.
• The difference gives you the relief amount.
2. File Form 10E:
• To claim relief, you must submit Form 10E online on the Income Tax portal before filing your ITR.
• If you skip this step, your claim may be disallowed, and you could even get a notice.
Example for Clarity:
• Suppose you earned ₹80,000 arrears for FY 2021–22, but you received it in 2025.
• Without relief: Entire ₹80,000 taxed this year → may push you into a higher slab.
• With relief: Tax recalculated by spreading the arrears into FY 2021–22 → tax burden reduced.
For step-by-step guidance, you can refer to the official Income Tax portal: