Section 157 of the Income-tax Act, 2025 — Relief When Salary is Received in Arrears or Advance (Old Section 89)

In plain language

What Section 157 is all about

Sometimes you receive money that really belonged to earlier years — salary arrears after a pay-commission hike, an advance salary, or arrears of family pension. Because our income tax is progressive (higher income = higher slab rate), getting several years' money in one lump sum can unfairly push you into a higher tax bracket. Section 157 of the Income-tax Act, 2025 fixes this. It is the exact successor to the well-known Section 89 (and 89(1)) of the Income-tax Act, 1961, and it carries the same relief forward into the new law effective 1 April 2026 (i.e., FY 2026-27 / AY 2027-28 onwards).

Which receipts qualify for relief

• Salary received in arrears — e.g., increment/DA arrears paid this year for past years.
• Salary received in advance — future-year salary paid to you now.
• Salary for more than 12 months received in a single tax year.
• Profits in lieu of salary under Section 18(1) (the 2025-Act equivalent of old Section 17(3)).
• Arrears of family pension (family pension is taxed as "income from other sources").

Who can claim it

• Salaried employees — government, PSU and private-sector staff who get arrears/advance salary.
• Pensioners receiving arrears of family pension.
• Any individual assessee whose tax is assessed at a higher rate purely because of the timing of such a lump-sum receipt.

Key conditions and limits

• File Form 39 before your ITR. Under the new Income-tax Rules, 2026, the old Form 10E has been renamed/replaced by Form No. 39. It must be filed online on the e-filing portal and e-verified before you submit the return, on or before the return due date referred to in Section 263(1)(c).
• No form, no relief. If you claim relief in the ITR but skip Form 39, the return is processed but the relief is disallowed — this rule is unchanged from the Form-10E era.
• No double benefit. Relief is not available where you have already claimed an exemption or deduction on the same amount — most importantly, if you claimed the VRS/voluntary-retirement exemption, you cannot also take arrears relief on that compensation.
• There is no fixed rupee cap. The relief is simply the tax you overpaid because of bunching; it can be small or large depending on your slabs.

How the relief is calculated

The idea is to spread the arrears back to the years they belong to and compare the two tax outcomes. In simple terms:

• Step 1: Tax on this year's total income including the arrears.
• Step 2: Tax on this year's income excluding the arrears. Difference = A.
• Step 3: Tax of the past year(s) after adding the arrears to that year.
• Step 4: Tax of that past year as originally assessed. Difference = B.
• Relief = A − B, deducted from your current-year tax. If A is not more than B, no relief arises.

How it interacts with other sections

Section 157 sits alongside the salary-taxation framework: Section 15/16 (charge and deductions from salary), Section 18 (profits in lieu of salary), and the standard deduction and rebate provisions. Employers also account for likely relief while deducting TDS on salary. Relief under Section 157 is computed on the tax, not on the income, so it applies after your slab tax is worked out under whichever regime you have chosen.

Practical implications

• Always compute the relief both under the old and new regime for the relevant years — the benefit can differ.
• Keep arrears break-up certificates from your employer showing which year each amount relates to; the past-year figures in Form 39 must match your actual filed incomes.
• Relief can turn a scary lump-sum tax bill into a modest one — never forget to file Form 39.