Section 157 of the Income-tax Act, 2025 allows relief on an application where total income is assessed at a higher rate because of arrears or advance salary, salary for more than twelve months, profits in lieu of salary, or arrears of family pension.
What section 157 does
Section 157 is the arrears relief — the successor to section 89 of the Income-tax Act, 1961, and the provision behind Form 10E. It addresses a specific unfairness: receiving several years' income in one year pushes the taxpayer into higher slabs than if it had been received when due.
The relief is available where total income is assessed at a rate higher than it otherwise would have been because of four categories of receipt: arrears or advance salary; salary for more than twelve months in one tax year; a payment in the nature of profits in lieu of salary under section 18(1); and arrears of family pension as defined in section 93(1)(d).
Two procedural points matter. The relief is granted on an application made by the assessee — it is not automatic. And sub-section (2) bars it where a deduction has been claimed under serial number 12 of the section 19(1) table — the voluntary retirement deduction — for that or any other tax year.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 89(1) | Relief where income is taxed at a higher rate | 157(1) |
| 89(1) | Arrears or advance salary | 157(1)(a) |
| 89(1) | Salary for more than twelve months | 157(1)(b) |
| 89(1) | Profits in lieu of salary | 157(1)(c) with 18(1) |
| 89(1) | Arrears of family pension | 157(1)(d) with 93(1)(d) |
| 89, proviso | No relief where the VRS exemption is claimed | 157(2) with 19(1) Table serial 12 |
| 89A | Relief on foreign retirement accounts | 158 |
Section 157 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — when relief arises
Where total income is assessed at a rate higher than the rate at which it would otherwise have been assessed because of: (a) a sum in the nature of arrear or advance salary; (b) salary for more than twelve months in any one tax year; (c) a payment in the nature of profits in lieu of salary under section 18(1); or (d) arrears of family pension as defined in section 93(1)(d), the Assessing Officer shall, on an application made by the assessee, grant such relief as may be prescribed.
The four categories, read carefully
Clause (a) covers both arrears and advance salary — relief is not confined to money received late. Clause (c) reaches profits in lieu of salary, so severance and termination compensation taxed under section 18 can qualify. Clause (d) extends the relief to family pension arrears, which is often overlooked because family pension is taxed under the other sources head, not salary.
It is an application-based relief
The words are 'on an application made to him by the assessee in this behalf'. The relief is not applied automatically at processing, and the computation must be furnished in the prescribed manner. A taxpayer who simply reports the arrears and pays tax at the higher slab does not receive it.
Sub-section (2) — the voluntary retirement bar
No relief shall be granted on any income for which a deduction has been claimed under section 19(1) (Table serial number 12) — the voluntary retirement deduction capped at ₹5,00,000 — for that or any other tax year. This mirrors section 19(2)(e)(iii), which denies the section 19 deduction where section 157 relief has been allowed. The two are mutually exclusive on the same amount.
Where the relief shows up elsewhere
Section 157 relief is taken into account in several computations: section 266(2)(c) for self-assessment, section 424(2)(b) in computing assessed tax for interest, and section 392(4)(a)(ii), which allows an employer to give effect to it in salary TDS for specified categories of employee.
Worked example
An employee receives ₹9,00,000 of salary arrears in tax year 2026-27 relating to 2022-23 to 2025-26, on top of current salary of ₹14,00,000.
| Approach | Effect | Outcome |
|---|---|---|
| Without section 157 | Total income ₹23,00,000, taxed at the top applicable slab under section 202 | Arrears taxed at the highest marginal rate |
| With section 157 | Relief computed as prescribed, spreading the arrears notionally over the years they relate to | Relief equal to the excess tax caused by the bunching |
| Prerequisite | An application by the assessee | Relief is not automatic |
| If the same amount attracted the VRS deduction under section 19(1) serial 12 | Sub-section (2) applies | No relief on that amount |
The employer can give effect to the relief in monthly TDS under section 392(4)(a)(ii), but only for the specified categories — a Government servant or an employee of a company, co-operative society, local authority, university, institution, association or body. Other employees must claim it in the return.
Note that a person receiving family pension arrears can also claim under clause (1)(d), and separately gets the family pension deduction under section 93(1)(d).
Compliance checklist and due dates
- Make the application in the prescribed manner; relief is not granted automatically.
- Identify which of the four categories applies — arrears or advance salary, salary for over twelve months, profits in lieu, or family pension arrears.
- Do not claim relief on an amount for which the section 19(1) serial 12 voluntary retirement deduction has been claimed in any year.
- Where the employer can give effect to it under section 392(4)(a)(ii), furnish the particulars so the benefit flows through payroll.
- Reflect the relief in self-assessment under section 266(2)(c) and in the assessed tax computation under section 424(2)(b).
- Retain the year-wise break-up of the arrears; the computation depends on allocating them to the years they relate to.
Common mistakes
- Assuming the relief is applied automatically on processing the return.
- Claiming both the voluntary retirement deduction and section 157 relief on the same amount.
- Overlooking that family pension arrears qualify, even though family pension is not salary.
- Forgetting that advance salary is covered, not only arrears.
- Failing to keep the year-wise allocation of arrears, without which the relief cannot be computed.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.