Tax on 8th Pay Commission arrears and how to get relief

Updated 11 October 2026

Pay arrears are taxed in the year you receive them, at that year's rates, even though they belong to earlier years. If the lump sum pushes you into a higher slab, you can claim relief under section 157 of the Income-tax Act, 2025 (section 89 of the old Act) by filing Form 39 (earlier Form 10E). This will matter to central government employees and pensioners when 8th Pay Commission arrears are paid.

Where the 8th Pay Commission stands

The government approved the 8th Central Pay Commission's terms of reference on 28 October 2025, with Justice (Retd.) Ranjana Prakash Desai as chair. Its report is due within 18 months, around May 2027. The date from which revised pay will apply has not been fixed, though 1 January 2026 is widely expected, and no fitment factor is official. See 8th Pay Commission and fitment factor.

If revised pay is backdated to 1 January 2026 and paid after the report is accepted, the arrears could cover January to March 2026 (tax year 2025-26), all of 2026-27 and part of 2027-28, paid together in one later year. That is exactly the situation the relief is meant for.

How arrears are taxed

Arrears of salary or pension are taxed as salary in the year they are received, if they were not taxed earlier. Your DDO or pension-paying bank deducts TDS on them in the month they are paid. Without relief, a large lump sum can push part of your income into the 20%, 25% or 30% slabs, or take you over the ₹12 lakh limit for the rebate.

The relief works out what the arrears would have cost if they had been taxed in the years they belong to, and gives back the difference:

1. Work out the tax for the year of receipt on total income with the arrears, minus the tax without them. Call this A.
2. For each earlier year the arrears relate to, work out the tax on that year's income with its share of the arrears, minus the tax without. Add these up. Call this B.
3. Relief = A − B, if it is positive. If B is larger, there is no relief (and no extra tax either).

The relief is available in both the old and the new regime, and the same method covers DA arrears, pension and family pension arrears, and the taxable part of gratuity or commuted pension. DA arrears paid in the same tax year they relate to, such as a July DA increase paid in October, need no relief, because they are taxed in their own year anyway.

How to claim the relief

1. Get the year-wise break-up of the arrears from your DDO, pay slip or arrears statement.
2. File Form 39 online on the e-filing portal before you file your return. It replaced Form 10E from April 2026, and the department's Form 39 FAQs advise filing it well in advance.
3. Give the details to your DDO or pension bank, so the relief can be allowed while TDS is deducted and you do not have to wait for a refund.
4. Claim the relief in your return. If you claim it without filing Form 39, processing can disallow it.

You do not revise the returns of the earlier years. For the general method and more examples, see section 89 relief on arrears. To estimate the arrears themselves, try the 8th Pay Commission salary calculator or the DA arrears calculator.

What you can do now

• Keep your Form 16 or Form 130 and your returns for 2025-26 and 2026-27: the relief needs your total income for each year the arrears belong to.
• Note which regime you used each year, since each earlier year's tax is worked out under that year's rates and choice.
• If your income in those years was close to ₹12 lakh, expect less relief: arrears that push an earlier year over the rebate limit raise that year's notional tax.
• Do not plan around a particular fitment factor or arrears amount: none is official yet.