Rule 73 — Relief under section 157(1), when salary is paid in arrears or in advance, gratuity, etc. Made under s.157, s.263, s.392 of the Income-tax Act, 2025.
Rule 73 gives effect to Section 157, Section 263 and Section 392 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule works out the relief admissible under section 157(1) where the total income of a tax year (the relevant tax year) is assessed at a rate higher than it would otherwise have been because of a receipt listed in column B of the Table in sub-rule (1). Column C gives the relief for each receipt.
Table Sl. No. 1 covers any portion of salary received in arrears or in advance, and any portion of family pension received in arrears — the additional salary or additional family pension. Relief is A – B, if A exceeds B, computed in four steps. Step 1 ascertains the tax years to which the additional salary or family pension relates and the amount relating to each. Step 2 calculates A = C – D, where C is tax on the total income of the relevant tax year and D is tax on that total income reduced by the additional salary or family pension, so A is the tax on the arrears in the year of receipt. Step 3 calculates, for each earlier tax year, E = F – G, where G is tax on that year's total income and F is tax on that income increased by the amount relating to it, so E is the tax the arrears would have borne in the year they related to. Step 4 aggregates those E figures as B.
Table Sl. Nos. 2 and 3 cover gratuity in respect of past services, split by length of service. Sl. No. 2 applies where past services extend over a period greater than or equal to five years but less than fifteen years: relief is G × (R1 – RAvg), if R1 exceeds RAvg, where G is the gratuity received in the relevant tax year, R1 is the average rate of tax on the total income including the gratuity in Y1, and RAvg is (R2 + R3)/2, R2 and R3 being the average rates for the two preceding tax years each computed on that year's total income increased by one-half of the gratuity. Sl. No. 3 applies where past services extend over a period of not less than fifteen years: the same formula, but RAvg is (R2 + R3 + R4)/3, taken over three preceding years each increased by one-third of the gratuity.
Table Sl. No. 4 covers compensation received from the employer or former employer at or in connection with the termination of employment, where continuous service was not less than three years and the unexpired portion of the term of employment is also not less than three years: relief is C × (R1 – RAvg), if R1 exceeds RAvg, on the three-year spread with one-third of the compensation added to each of Y2, Y3 and Y4. Table Sl. No. 5 covers commutation of pension received, on the same three-year spread with one-third of the commuted amount added to each of the three preceding years.
Sub-rule (2) leaves other receipts to the Board, which may, having regard to the circumstances of the case, allow such relief as it deems fit. Sub-rule (3) requires the assessee claiming relief to furnish the particulars specified in Form No. 39 on or before the due date specified under section 263(1)(c). Sub-rule (4) allows an assessee who is a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body, and who is entitled to relief, to furnish the Form No. 39 particulars to the person responsible for making the payment referred to in section 392(1).
Section 157(1) promises relief where a bunched receipt pushes income into a higher rate, but a promise of relief is unworkable without a method of measuring the distortion. The rule supplies five methods for five kinds of bunched receipt, each of which compares the tax actually borne in the year of receipt with the tax the same money would have borne had it arrived when it was earned. Sub-rule (2) leaves the Board to deal with receipts the Table does not name, and sub-rules (3) and (4) fix how the claim is made.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Relief for salary in arrears or in advance, or family pension in arrears | A – B, if A exceeds B | A is the tax on the additional salary or additional family pension in the relevant tax year (C – D); B is the aggregate of E, the tax it would have borne in each year it relates to (F – G) | Sub-rule (1), Table Sl. No. 1 |
| Length of past service for the two-year gratuity spread | Five years or more but less than fifteen years | Gratuity received in respect of past services extending over that period | Sub-rule (1), Table Sl. No. 2 |
| Proportion of gratuity added to each preceding year under the two-year spread | One-half | Added to the total income of Y2 and of Y3 to compute R2 and R3; RAvg is (R2 + R3)/2 | Sub-rule (1), Table Sl. No. 2 |
| Length of past service for the three-year gratuity spread | Not less than fifteen years | Gratuity received in respect of past services extending over that period | Sub-rule (1), Table Sl. No. 3 |
| Proportion of gratuity added to each preceding year under the three-year spread | One-third | Added to the total income of Y2, Y3 and Y4 to compute R2, R3 and R4; RAvg is (R2 + R3 + R4)/3 | Sub-rule (1), Table Sl. No. 3 |
| Service and unexpired term conditions for relief on termination compensation | Not less than three years, on both counts | Continuous service must be not less than three years and the unexpired portion of the term of employment must also be not less than three years | Sub-rule (1), Table Sl. No. 4 |
| Relief for gratuity, compensation or commuted pension | Amount received × (R1 – RAvg), if R1 exceeds RAvg | R1 is the average rate of tax on the total income of the relevant tax year including the receipt; RAvg is the average of the recomputed rates for the preceding years | Sub-rule (1), Table Sl. Nos. 2 to 5 |
| Time limit for furnishing the particulars of the claim | On or before the due date specified under section 263(1)(c) | Particulars specified in Form No. 39 | Sub-rule (3) |
Every formula in the Table is conditional on the comparison coming out one way. For arrears the relief exists only if A exceeds B, and for the other four receipts only if R1 exceeds RAvg; where the earlier years were taxed at the same or a higher effective rate, the computation is done and the relief is nil. The two gratuity entries are distinguished by length of past service and they behave differently: below fifteen years the gratuity is spread notionally over two preceding years in halves, at fifteen years or more over three preceding years in thirds, and the boundary is exact — five years is inside Sl. No. 2 because it reads greater than or equal to five years, and fifteen years falls into Sl. No. 3 because that entry reads not less than fifteen years. The Sl. No. 1 method works on tax amounts, while Sl. Nos. 2 to 5 work on average rates of tax, so the two families of computation are not interchangeable. Sub-rule (4) is a convenience, not a substitute for entitlement: it lets certain employees hand the particulars to the payer so that relief is given at the deduction stage, and the classes of employer named there are exhaustive. The relief itself is conferred by section 157(1); the rule measures it.
An employee receives Rs 3,00,000 of salary arrears in the relevant tax year, of which Rs 1,80,000 relates to the year before and Rs 1,20,000 to the year before that. Tax on the relevant year's total income is Rs 2,40,000 and tax on that income reduced by the arrears is Rs 1,50,000, so A is Rs 90,000. Recomputing the two earlier years with their own amounts added gives extra tax of Rs 36,000 and Rs 22,000, so B is Rs 58,000 and the relief under Table Sl. No. 1 is Rs 32,000. The employee furnishes the particulars in Form No. 39 on or before the section 263(1)(c) due date; had A come out at Rs 50,000, less than B, no relief would be admissible.
You meet it in the return for a year in which arrears, a gratuity, termination compensation or a commuted pension has been received, in the Form No. 39 particulars filed with it, and — for employees of the bodies listed in sub-rule (4) — in the salary computation the employer prepares before deducting tax.
In case of any other receipts, the Board may, having regard to the circumstances of the case, allow such relief as it deems fit.
To claim relief under section 157(1), the assessee shall furnish the particulars specified in Form No. 39 on or before the due date specified under section 263(1)(c).
Gratuity received in respect of past services extending over a period of not less than fifteen years