- Section 157 covers salary paid in arrears or in advance, replacing section 89 of the 1961 Act.
- Form 39 is filed online and must be furnished before claiming relief.
- An employee of a company can give Form 39 to the employer, who reflects the relief in TDS.
- Maharashtra’s July to December 2026 minimum wages were notified on 5 August 2026, with effect from 1 July.
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What counts as salary arrears in India?
Any wage that was due for a past period but is paid in a later one.
The common causes are ordinary. A performance appraisal closes in June but the raise applies from April. A payroll error underpaid someone. Or a state revises minimum wages after the period has started.
That last one happened in 2026. Maharashtra notified its July to December rates on 5 August, backdated to 1 July. Any Pune employer paying close to the minimum had July arrears to clear.
Arrears go into the next run of your payroll cycle and should appear as a separate line on the payslip, with the months they relate to.
How do salary arrears affect tax?
Arrears are taxed in the year you pay them, which can push an employee into a higher slab. Section 157 of the Income-tax Act, 2025 eases that.
Rule 73 of the Income-tax Rules, 2026 sets the method. Work out the extra tax the arrears cause this year (A). Then add up the extra tax they would have caused in the years they belong to (B). Relief is A minus B, if A is larger.
What does section 157 relief look like in rupees?
Let’s say an engineer receives ₹2,00,000 of arrears in tax year 2026-27 for work done in FY 2025-26. Both years use the new regime, with taxable income shown after the standard deduction.
| Step | Without arrears | With arrears | Extra tax |
|---|---|---|---|
| Tax year 2026-27 | ₹14,00,000: tax ₹93,600 | ₹16,00,000: tax ₹1,24,800 | A = ₹31,200 |
| FY 2025-26 | ₹10,00,000: tax nil | ₹12,00,000: tax nil | B = nil |
| Section 157 relief | ₹31,200 |
FY 2025-26 tax stays nil because ₹12 lakh sits inside the rebate limit. So the whole ₹31,200 comes back. Tax figures include 4% cess.
What should you do as the employer?
Collect Form 39 first. Do it before you compute the month’s TDS.
Under section 392, you must take into account any relief the employee is entitled to under section 157 when deducting TDS on salary. The Income Tax Department’s Form 39 FAQs say it is filed online, with a valid PAN. If the employee skips it, the relief can’t be granted.
Under an EOR, this sits with the legal employer, alongside the wider payroll compliance in India duties. Our guide on how to pay employees in India covers the rest of the pay run.
How does Remunance handle arrears for your India team?
Remunance runs TDS, quarterly TDS returns and annual salary TDS certificates for every employee it employs, so arrears flow through one calculation. When a backdated raise lands, we split it by month, show it clearly on the payslip and fold any Form 39 relief into TDS. If an appraisal cycle is about to create arrears, plan the payout with our payroll team.
What else do people ask about salary arrears?
Are salary arrears taxable in India?
Yes. They’re taxed as salary in the year received. Section 157 relief, claimed through Form 39, can reduce the extra tax.
What is the difference between arrears and advance salary?
Arrears are paid after the period they relate to. An advance is paid before it falls due. Section 157 covers both.
Can I claim arrears relief if my employer didn’t apply it?
Yes. File Form 39 on the e-filing portal before your return due date and claim the relief in your return.
Planning a hire in India?
Our founding team has run payroll and hiring in India for 22+ years, first as Remunance Systems, which was later acquired by ADP.