The Income Tax Department does not mandate the filing of ITR for previous years to claim Section 89(1) relief. Even if a taxpayer did not file an ITR for the year(s) to which the arrears relate, they can still claim relief by providing alternative evidence supporting the tax computation.
Claiming Section 89 Relief Without Filing Previous Year’s ITR: A Detailed Analysis
The Income Tax Act, 1961, provides relief under Section 89(1) to taxpayers who receive salary arrears, gratuity, commuted pension, or compensation on termination in a financial year different from when it was due. This ensures that individuals are not unfairly taxed at higher rates due to income bunching.
A frequent concern arises regarding eligibility for this relief when the Income Tax Return (ITR) for the previous years—to which the arrears pertain—was not filed. This report thoroughly examines whether an individual can still claim Section 89 relief under such circumstances, the legal framework governing this provision, and the procedural requirements involved.
Legal Framework of Section 89(1) Relief
Section 89(1) offers tax relief by spreading arrears over the years they were due, rather than taxing them entirely in the year of receipt. This prevents an unnecessary increase in tax liability due to movement into a higher tax bracket.
To claim this relief, taxpayers must file Form 10E electronically before submitting their ITR for the assessment yearin which arrears are received. The relief is then reflected in the tax computation for that year.
Eligibility Criteria for Claiming Section 89 Relief
A taxpayer can claim relief under Section 89(1) if the following conditions are met:
- Residency Requirement – The individual must be a resident of India for the relevant assessment year.
- Type of Income Covered – The relief applies to:
- Salary arrears
- Gratuity
- Commuted pension
- Compensation for employment termination
- Other government-notified income components
- Tax Impact – Relief is only applicable if the arrears increase the tax burden in the year of receipt compared to the years they were due.
Claiming Section 89(1) Relief Without Filing Previous Year’s ITR
Is Previous Year’s ITR Mandatory?
The Income Tax Department does not mandate the filing of ITR for previous years to claim Section 89(1) relief. Even if a taxpayer did not file an ITR for the year(s) to which the arrears relate, they can still claim relief by providing alternative evidence supporting the tax computation.
For example, if a taxpayer received salary arrears in FY 2024–25 that pertain to FY 2020–21, but they did not file an ITR for FY 2020–21, they can still claim relief by submitting:
✅ Employer certification or salary slips showing the arrears’ distribution across years.
✅ Tax computation comparing liabilities for the year of receipt vs. the years of accrual.
✅ Bank statements or employment records as supporting proof.
This is particularly beneficial for individuals who did not file previous ITRs because their income was below the taxable threshold in those years.
Mandatory Filing of Form 10E
While previous ITRs are not required, Form 10E remains compulsory. Filing Form 10E before submitting the ITRensures that the relief claim is processed without automatic disallowance. If Form 10E is not filed, the relief under Section 89(1) will be denied, even if claimed in the ITR.
Form 10E requires:
✔️ Breakdown of arrears across financial years
✔️ Tax liability calculations for comparison
✔️ Declaration of accuracy of submitted information
Taxpayers failing to file Form 10E before submitting their ITR may receive notices under Section 143(1) for non-compliance.
Challenges and How to Overcome Them
1. Substantiating Arrears Without a Filed ITR
Taxpayers who lack an ITR for previous years can use alternative documentation to establish their case:
📌 Employer’s Letter/Certificate – Confirmation of arrears related to prior years.
📌 Salary Slips/Payslips – Evidence of unpaid dues from past years.
📌 Bank Statements – Reflecting arrear payments.
📌 Self-Prepared Tax Computation – Showing the impact of spreading arrears across past years.
2. Risk of Scrutiny by the Income Tax Department
Since the claim involves previous financial years, tax authorities might scrutinize whether the arrears were genuinely accrued or artificially allocated to reduce taxes. Proper documentation reduces the risk of rejection or inquiry notices.
Section 89 Relief Under the Old vs. New Tax Regime
Does Section 89 relief apply under both tax regimes?
✅ Yes. However, the calculation differs:
🔹 Old Regime: Relief is based on slab rates, deductions (like 80C, HRA), and exemptions available in past years.
🔹 New Regime: Since this regime offers lower tax rates but removes most deductions, relief calculations must be adjusted accordingly.
If a taxpayer switches between tax regimes, they should compute the relief under both regimes to determine which one is more beneficial before filing their return.
Case Study: Claiming Relief Without Previous ITR Filing
Scenario:
Mr. Raj received ₹2,00,000 as salary arrears for FY 2020–21 in FY 2024–25. He did not file an ITR for FY 2020–21 as his income was below the taxable limit.
Step-by-Step Tax Relief Calculation
1️⃣ Calculate tax for FY 2024–25, including arrears:
- Total taxable income: ₹12,00,000
- Tax payable: ₹1,50,000
2️⃣ Calculate tax for FY 2024–25, excluding arrears:
- Total taxable income: ₹10,00,000
- Tax payable: ₹1,10,000
3️⃣ Compute tax for FY 2020–21 if arrears were received then:
- Total taxable income: ₹4,00,000
- Tax payable (as per old slab rates): ₹5,000
4️⃣ Section 89 Relief Calculation:
Extra tax paid due to arrears (₹40,000) – Tax payable in past year (₹5,000) = ₹35,000 relief granted.
Final Steps:
✅ Mr. Raj files Form 10E with supporting documents.
✅ ITR for FY 2024–25 includes the relief claim, despite no ITR filed for FY 2020–21.
✅ Relief of ₹35,000 is successfully granted.
Key Takeaways
✔️ Previous ITR is NOT mandatory for claiming relief under Section 89(1).
✔️ Form 10E MUST be filed before submitting the ITR.
✔️ Alternative documentation (salary slips, employer certificates, bank statements) can substantiate arrears in the absence of past ITRs.
✔️ Taxpayers should compute relief under both tax regimes to maximize benefits.
✔️ Proper documentation reduces the risk of scrutiny.
