Section 89 Relief from Salary

By | May 5, 2026
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Section 89 Relief from Salary

Introduction
Section 89 provides relief to employees to mitigate additional tax liability arising due to receipt of arrears, advance salary, or other lump sum payments, which may result in higher tax rates in the year of receipt.

Eligibility for Relief
Relief is available for the following:

  1. Salary arrears or advance salary.
  2. Arrears of family pension.
  3. Premature withdrawal from Provident Fund.
  5. Commuted value of pension.
  6. Compensation on termination of employment.

Procedure to Claim Relief

  • Relief must be claimed in the income-tax return for the year of receipt.
  • Submission of Form 10E is mandatory before filing the return.

Computation of Relief
Relief is calculated by comparing the tax payable with and without the lump sum receipt, both in the year of receipt and the year(s) to which it relates.

The relief in respect of receipts enumerated above shall be calculated in following steps.

Step 1: Calculate tax on total income of current year including above receipts

Step 2: Calculate tax on total income of current year excluding above receipts

Step 3: Calculate tax on total income of the year to which the above receipts relate after excluding these receipts

Step 4: Calculate tax on total income of the year to which the above receipts relate after including these receipts

Step 5: Calculate difference between (Step 1 minus Step 2) and (Step 4 minus Step 3)

If result of calculation in Step 5 is positive, such excess amount is allowed as relief. If result of Step 5 is negative, no relief shall be allowed to the employee.

Specific Cases of Relief

  • Gratuity
    • Eligible if service is ≥5 years.
    • Relief applies only to the taxable portion of gratuity.
    • Calculations depend on the term of service:
      • ≥15 Years: Average tax rates for the current year and the previous three years are considered.
      • <15 Years: Average rates for the current year and the previous two years are used.
    • Compensation on Termination
      • Calculated like gratuity for service ≥15 years.
      • If claiming Section 89 relief for Voluntary Retirement Compensation, exemption up to 5,00,000 under Section 10(10C) is not allowed.
    • Commutation of Pension
      • Relief calculated as if gratuity were paid for service of ≥15 years.