Arrears

Arrears are payments owed for a previous pay period that weren't paid on time — most commonly, back pay from a salary revision that's applied retroactively, or a correction to a previous month's payroll error.

Arrears are taxed in the year they're received, which can push an employee into a higher effective tax bracket for that month. Section 89(1) relief (claimed via Form 10E, filed before the return) exists specifically to offset this, letting employees spread the tax impact of arrears across the years they were actually earned — available under both tax regimes. Under the Income-tax Act, 2025 (effective FY2026-27), this relief is renumbered Section 157 and Form 10E becomes Form 39.