The Coffee Machine Verdict
Did you receive Arrears (DA or MACP) this financial year?
- The Trap: The Accounts Department likely deducted 30% TDS on that lump sum immediately.
- The Secret: That money belongs to previous years when your tax slab was lower.
- The Move: File Form 10E. Most DDOs won’t tell you this because it creates extra work for them, but you can legally claim a refund of ₹20,000 to ₹40,000.
Topic: Section 89(1) Relief on Arrears.
Urgency: High (Before March Salary Processing).
Status: Your DDO will NOT calculate this automatically. You must demand it.
New Delhi: It is mid-February. The Accounts Section is in panic mode, finalizing tax calculations for the year. If you received any arrears this financial year—be it the 4% DA arrears, MACP fixation arrears, or a withheld increment release—you are about to see a massacre in your March salary slip. Why? Because the payroll system treats that lump sum as “Current Year Income” and slaps the highest tax rate on it. Here is the insider guide to getting that money back using Section 89(1).
1. The “Verma Ji” Disaster (Real World Anecdote)
Let me tell you about Mr. Verma, a Superintendent who retired last year. In FY 2025, he received ₹3.5 Lakhs as MACP arrears dating back to 2022.
The DDO added this ₹3.5 Lakhs to his 2025 income. Since Verma ji was already in the 30% bracket, the system deducted ₹1,09,200 as tax instantly.
The Mistake: Verma ji complained about the tax but did nothing to fix it.
The Truth: If he had applied for Section 89(1) Relief, the calculation would have shown that in 2022 (the year the money actually belonged to), he was in the 20% slab. He overpaid roughly ₹35,000. He effectively donated a brand new motorbike to the Income Tax Department because he didn’t file one form.
2. The Math: How “Relief” is Calculated
I know, math is boring. But this math puts cash in your pocket. Section 89(1) basically asks: “What would the tax have been if the money was paid in the correct year?”
| Step | Description | Tax Rate Applied |
|---|---|---|
| Option A (Lazy) | Tax arrears in the year received (2026). | 30% (Current Slab) |
| Option B (Smart) | Recalculate tax for the past year (e.g., 2023). | 20% (Old Slab) |
| The Refund | Difference between Option A and B. | 10% Saved |
My Opinion: DDOs hate calculating this because it requires opening old Pay Bill Registers (PBR). They will tell you, “File it in ITR.” Don’t listen. Force them to adjust it now, or you will be out of cash in March.
3. The “Form 10E” Blockade
You cannot claim this relief in your ITR unless you file Form 10E on the Income Tax Portal. If you claim the refund without filing this form, you will receive a Defective Return Notice from the IT Department.
How to file it in 5 minutes:
- Login: Go to Income Tax Portal > e-File > Income Tax Forms.
- Select: “Form 10E” (Relief u/s 89).
- Fill Annexure I: Enter the Total Arrears and the “Break-up” (how much belongs to which year).
- Result: The portal automatically calculates the relief amount. Submit it.
4. Pros & Cons: Is it worth the headache?
Let’s be realistic. Filing Form 10E is annoying. Is the juice worth the squeeze?
Instant Cash: Saving ₹30,000 tax means ₹30,000 more in your bank.
Legal Right: You are not evading tax; you are paying the correct tax.
Data Digging: You need your Form 16 from 3-4 years ago. If you lost them, good luck.
Small Amounts: If arrears are less than ₹50,000, the relief might be just ₹2,000. Not worth the paperwork.
5. Smart Alternative: “Spread The Loss”
If you missed the deadline to submit Form 10E to your DDO (usually Feb 15), don’t panic. You can still claim it while filing your ITR in July.
- The Trick: Let the DDO deduct the high tax in March.
- The Benefit: Treat it as “Forced Savings.”
- The Payout: When you file ITR in July with Form 10E, the IT Department will refund the excess amount with interest. It’s like a mini-bonus in August.
Does this apply to Vth Pay Commission arrears?
Yes. Section 89(1) applies to any arrears of salary, pension, or family pension. Even if you receive arrears from 10 years ago, you can reopen the calculation for that specific year to save tax.
My DDO refuses to adjust Section 89 relief. What now?
DDOs are technically required to allow relief u/s 89(1) if you submit the calculation (Rule 21AA). However, if they are stubborn, don’t fight. Let them deduct the TDS. You can claim 100% of it back directly from the Income Tax Department when filing your return.
हिंदी सारांश: एरियर पर टैक्स कैसे बचाएं?
समस्या: आपको जो एरियर (DA/MACP) मिला है, उस पर सरकार ने अभी के हिसाब से 30% टैक्स काट लिया है, जबकि वह पैसा पुराने सालों का था जब टैक्स कम था।
जादू (Section 89): आप सरकार को बता सकते हैं कि “यह पैसा 2022 का है, 2026 का नहीं।” इससे आपका टैक्स कम हो जाएगा।
करना क्या है: इनकम टैक्स पोर्टल पर Form 10E भरें। अगर ऑफिस वाले नहीं मानते, तो ITR भरते समय रिफंड मांग लें।
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Disclaimer: This article is for informational purposes only and does not constitute professional financial or legal advice. Tax laws are subject to change. Readers are advised to consult a Chartered Accountant (CA) or tax professional before filing Form 10E or making significant tax-related decisions.
