Salary arrears coming? Section 157 relief is not available without Form 39

If you are a government employee, in a PSU, in a bank, a teacher — or with any employer where a pay revision is pending — a substantial sum may reach your account in the coming months.

And a problem will come with it.

Two or three years of money will be credited in a single year. Your income for that year is artificially inflated, you land in the 20% or 30% slab, and you pay tax that never actually arose. Because had that money come in its own year, each year's income would have been lower and the slab with it.

The law already provides a remedy. Only its name has changed.

# First, the naming

The concept is identical. But many HR portals, payroll teams and older blog posts still say "just file Form 10E". If you go looking for Form 10E on the portal you will be confused — it is now Form 39.

# The logic in one line

Arrears should be taxed as they would have been taxed had the money arrived in the year it related to.

That is all. The rest is arithmetic.

# The seven-step computation

Suppose you receive ₹6,00,000 of arrears in FY 2026-27 — ₹2,00,000 relating to FY 2023-24, ₹2,00,000 to FY 2024-25, and ₹2,00,000 to FY 2025-26.

If B exceeds A — which happens when your income in the earlier years was higher than it is now — relief is nil. There is no such thing as negative relief. And this does happen, so do not assume relief before computing it.

# The biggest confusion about regimes

Several popular websites state that arrears relief is available only under the old regime.

That is wrong.

Section 157 is not tied to any regime. Relief is available under both. But the computation carries a discipline:

• For each earlier year, use the regime you actually filed under in that year
• For the current year, use the regime you are filing under now

So if you filed FY 2023-24 under the old regime and are now filing under the new regime, steps 4 and 5 run on old-regime slabs while steps 1 and 2 run on new-regime slabs. Mixing them is not an error — it is the correct approach. The question being asked is "how much tax would actually have applied that year", and that year you were on the old regime.

# The one mistake that destroys the relief

Form 39 has to be submitted before the ITR is filed — separately, on the e-filing portal.

If you claim relief in the ITR without having filed Form 39:

1. The return is processed
2. A Section 143(1) intimation arrives
3. The relief is disallowed
4. A demand is raised — the full extra tax, with interest

You then have to file a rectification, file Form 39 separately, and go round for months. It usually resolves within a year, but it is entirely avoidable pain.

# The VRS bar

There is one specific restriction that people miss.

Section 157(2) provides that where you have claimed the exemption on VRS compensation for a year, arrears relief is not available for that year.

The logic is straightforward: not two benefits on the same money. Either the exemption or the relief. If you have taken VRS and old arrears have arrived alongside, it is essential to check which portion the relief is being claimed on.

# The employer will deduct TDS — and will not give the relief

A practical point: the employer will add the arrears to that month's salary and deduct TDS. The benefit of the relief is generally not built into the TDS computation.

You can give the employer a copy of Form 39 and ask them to consider the relief in TDS — some payroll systems do this, many do not. In most cases excess TDS is deducted and you claim the relief in your return and receive a refund.

So a large refund in an arrears year is entirely normal. Do not be alarmed, and plan cash flow around it.

# What falls within the relief

Not only salary arrears:

• Salary arrears and advance salary
• Family pension arrears
• Gratuity (subject to specified conditions)
• Commuted pension
• Compensation on termination

Each carries its own conditions, but salary and pension arrears are by far the most common.

# Checklist — before the arrears arrive

1. Retrieve ITRs and Form 16s for the earlier years — as many years as the arrears cover
2. Note which regime applied in each year
3. Ask the employer for the year-wise breakup of the arrears — this is the most important document of all; the computation cannot be done from a lump sum figure
4. Form 39 first, ITR second
5. Claimed the VRS exemption? Then no relief for that year

Written by

Prabhakar Kumar

Chartered Accountant (ICAI, Nov 2019)

Founder of VittSphere Technologies. Practicing CA serving 200+ MSME clients across Pune. 86% win-rate at AO and CIT(A) level tax appeals. Writes on Indian taxation, capital gains, and personal finance.