Can You Claim Section 89(1) Tax Relief Without Salary Arrears Break-up? A Complete Guide

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Can You Claim Section 89(1) Tax Relief Without Salary Arrears Break-up? A Complete Guide

In the modern corporate world, financial uncertainties often result in delayed salary payments. For employees dealing with lump sum arrears and irregular salary disbursements, the Indian Income Tax Act offers a provision for relief under Section 89(1). This provision prevents taxpayers from being unfairly taxed in a single year on income that actually pertains to multiple years.

But what happens when an employer fails to provide a clear break-up of salary arrears? Can you still claim this tax relief? How does it affect your income tax filing for Assessment Year 2025-26? This blog decodes the nuances of claiming relief under Section 89(1), the significance of Form 10E, and what you can do when essential data from your employer is unavailable.

📜 What is Section 89(1) of the Income Tax Act?

Section 89(1) of the Income Tax Act, 1961, allows tax relief for individuals who receive salary arrears, advance salary, gratuity, or compensation for termination of employment in a lump sum, resulting in a spike in taxable income for a particular year.

Without this provision, such income would be taxed at a higher slab rate in the year of receipt, potentially causing financial strain on the taxpayer. Section 89(1) smooths this by reallocating the income to the years to which it actually pertains, recalculating tax for those years, and allowing a relief for the excess tax paid.

Source: Income Tax Act, 1961 - Section 89(1)

📑 What is Form 10E and Why Is It Important?

To claim relief under Section 89(1), you must file Form 10E before filing your Income Tax Return (ITR) for the relevant assessment year. Form 10E records the year-wise break-up of arrears received and computes the tax impact accordingly.

📌 Key Features:

Mandatory for claiming Section 89(1) relief.
Filed online via the Income Tax e-filing portal.
Requires a clear year-wise break-up of arrears received.

Source: Income Tax e-Filing Portal

📊 When Does Salary Become Taxable?

Under the Indian Income Tax Act:

Salary is taxable on the earlier of due or receipt basis.
Any advance salary is taxable in the year of receipt.
Salary that is due but not paid becomes taxable in the year it was due.

This means salary arrears for previous years ideally should have been included in your taxable income in those respective years, irrespective of whether you actually received it then.

🔍 The Issue: No Break-up of Salary Arrears

In some cases, as highlighted by tax expert Balwant Jain in an article for Mint (20 June 2025), companies facing financial difficulties pay lump sum arrears without specifying:

The year(s) for which the arrears are paid.
The break-up between basic salary, allowances, and other components.

Without this structured information:

Form 10E cannot be filled.
Section 89(1) relief cannot be claimed.

This leads to higher tax liability in the year of receipt, as the entire arrears are taxed in one assessment year at possibly a higher slab rate.

Source: Mint Article by Balwant Jain

📉 Consequences of Not Filing Form 10E

If you fail to file Form 10E:

You forfeit your eligibility to claim Section 89(1) relief.
Your total tax liability increases due to a lump sum income taxed at a higher slab.
The Income Tax Department may reject your claim for relief if you attempt to claim it through your ITR without the form.

Important: Even if arrears pertain to multiple years, without a year-wise break-up you cannot compute the differential tax impact accurately.

📌 Employer’s Obligation to Provide Salary Details

Employers are responsible for:

Issuing detailed salary certificates or Form 16.
Clearly indicating salary components and the respective periods for which arrears are paid.

As per Section 203 of the Income Tax Act, tax deducted at source (TDS) on salaries must be accompanied by a certificate showing income particulars, which indirectly mandates break-ups.

If the employer withholds this information, it creates difficulties for both tax compliance and relief claims for employees.

Source: Income Tax Act, Section 203

📝 What Can You Do If Your Employer Doesn’t Provide a Break-up?

If your employer refuses to provide the required break-up:

Request the salary ledger statement or any document detailing salary dues and payments.
Write a formal email/letter requesting year-wise arrears details for tax purposes.
If unsuccessful, you may:
- Declare the entire lump sum as taxable income in FY 2024-25.
- Forgo the relief under Section 89(1) for this financial year.

Balwant Jain’s advice: Since you cannot file Form 10E without this data, it’s prudent to include the entire arrears in your taxable salary income for the year of receipt.

📊 Example: Tax Impact Without Section 89(1) Relief

Scenario	Without Relief	With Section 89(1)
Total taxable salary (including arrears)	₹15,00,000	₹15,00,000
Tax rate (approx.)	30%	Effective rate across multiple years
Tax payable	₹4,50,000	₹3,80,000 approx.
Tax saved	NIL	₹70,000

Disclaimer: The figures above are illustrative.

📣 Key Takeaways

Section 89(1) relief is a valuable provision for avoiding tax spikes due to lump sum income.
Form 10E is mandatory to claim this relief and requires a clear year-wise arrears break-up.
In the absence of employer data, you cannot claim this relief and must offer the entire income for tax in the year of receipt.
Always obtain salary arrears statements and Form 16 with full details for tax compliance.
When in doubt, consult a SEBI-registered tax advisor or chartered accountant.

📚 References

📌 Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or legal advice. Consult a certified tax professional for personalized guidance.