The processing unit has disallowed my client's s.89 relief because Form 10E was not on the portal when the return was processed - can the relief still be had, and was the employer wrong to deduct on the whole amount?
The client is an assistant manager in a public sector undertaking at Bhubaneswar, assessed at a ward there. A wage revision settlement signed on 28 August 2024 gave arrears for the period 1 January 2020 to 31 March 2024. The arrears of Rs 11,84,000 were paid on 30 September 2024, in FY 2024-25, and the employer deducted tax of Rs 3,46,000 on the whole of them in that month along with the regular salary. No Form 10E was given to the employer, so no relief was worked into the deduction. The return for AY 2025-26 was filed on 22 July 2025 declaring total income of Rs 19,60,000 and claiming relief under s.89 of Rs 2,18,000, computed by the client's accountant on a spreadsheet. Form 10E was not uploaded. The intimation under s.143(1) dated 14 January 2026 withdraws the entire relief and raises a demand of Rs 2,41,000 with interest under s.234B and s.234C. An application under s.154 was filed on 3 February 2026 and no order has been passed on it. The client holds the settlement, the year-wise arrears sheet certified by the employer, Form 16 for FY 2024-25, and his own returns and intimations for AY 2020-21 to AY 2024-25.
Upload Form 10E on the portal this week, before touching the rectification or the appeal. The relief is computed from that form, the processing unit will not recompute anything without it, and both remedies are refused on the same sentence while it is missing. Upload it for the assessment year in which the arrears were received, not for the years they relate to, which is the error that produces a second rejection. Then pull the returned and assessed total income for each of the five back years, because the worksheet is built from those figures and not from the arrears sheet.
The form is the machinery, not the entitlement. Section 89 gives the relief and Rule 21A prescribes how it is computed; the form is what carries the computation to the officer. A Tribunal Bench has held that filing Form 10E is a procedural requirement and has directed the officer to accept a form filed after the intimation under s.143(1) and to grant the relief after verification, following the reasoning of another Bench that where a prescribed form goes to a relief the requirement to file it is directory and not mandatory. That is the direct answer to the sentence in the intimation, and it is the ground on which the rectification should be framed.
Section 192(2A) is what obliges the employer to compute the relief and give it in the deduction, and it operates only on the particulars furnished in Form 10E. A High Court has held that the employer cannot be found at fault for deducting tax at source on the whole amount in the absence of an application in that form. The general position points the same way: s.192(1) requires deduction on the estimated income of the employee under the head, so the duty is an honest and reasonable estimate, and another High Court has held that where the estimate was honest the employer is not in default even though the figure later turns out to be wrong.
Section 15 charges salary due from an employer whether paid or not, or paid or allowed though not due, so the year of charge is not always the year of the cheque. A High Court has held that once salary has accrued under the contract of service, a resolution passed after the close of the year cannot undo the accrual and at most operates as a waiver. Another has held that the whole of a compensation became due when the employee was released and was chargeable at that point, so spreading the payment over later years did not turn the instalments into salary of those years. Where arrears become due only on the settlement date, they are salary of FY 2024-25 and s.89 is the only relief available.
The computation has two halves. First, the tax on the total income of the year of receipt including the arrears, less the tax on that total income excluding them, which gives the tax the bunching produced. Second, the tax that the same arrears would have attracted had each slice been added to the total income of the year it relates to, aggregated. The relief is the excess of the first over the second, and it is nil where there is no excess. That means five separate recomputations for AY 2020-21 to AY 2024-25 on the total income as returned and assessed for each of those years, with the arrears slice added to each.
Section 89 reaches salary paid in arrears or in advance, salary for more than twelve months received in one year, a payment that is a profit in lieu of salary under s.17(3), and arrears of family pension, and the rule prescribes a different computation for each. Section 17(3) itself has three limbs - compensation at or in connection with termination or modification of the terms of employment, payments from a provident or other fund outside the listed exclusions, and sums received before joining or after ceasing employment - and the limb decides the treatment. A Tribunal Bench has held that where a Government-approved closure scheme engages the second proviso to s.10(10B) the whole of the compensation is exempt; the same Bench separately directed that relief under s.89 be allowed on the net gratuity brought to tax.
The relief is an arithmetic comparison of tax on total income, so the regime that fixed the tax for FY 2024-25 fixes the first half of the computation, and each back year carries whatever regime was in force and was in fact adopted for it. The Board's annual circular under s.192 for FY 2024-25 consolidates the rates, the amendments made by the Finance Acts of 2023 and 2024 and the mechanics of the employer's deduction, and it is the document to put in front of anyone who disputes the rates used. State the regime for each of the six years on the face of the worksheet rather than leaving it to be inferred.
Relief under s.192(2A) has to be asked for before the payment, not after it. The employee gives the employer the particulars in the prescribed form and the employer computes the relief into the deduction; other income and losses go to the employer under s.192(2B), and a mid-year change of employer needs the previous employer's particulars so that one estimate covers the whole year. A High Court has held that the employer's liability is to deduct on the employee's taxable income and that a certificate from the employee is adequate where part of the receipt is exempt - which is the same principle: the employer acts on what he is given.
The demand of Rs 2,41,000 is the arithmetic consequence of the withdrawn relief and will fall with it, but it is live in the meantime and the next refund is exposed. There is a line of authority that helps only in a different case: a High Court has held that s.205 bars a direct demand on the person from whose income tax was deducted, and that setting a later year's refund off against such a demand is an indirect recovery of the same tax, quashing both the demand and the adjustment. That works where the deductor deducted and did not deposit. Here the tax was deducted and deposited and appears in the tax credit statement, so the protection is not engaged.
Relief withdrawn only because the form was missing is usually restored, but rarely by the processing unit and rarely on the first application. The commonest path is a rejected rectification followed by a first appellate order restoring the relief subject to verification of the worksheet, two years or so after the intimation. Where the worksheet does not hold up against the back years' total incomes, the relief comes back reduced rather than in full, and that is at least as common as a clean restoration. The point that occasionally produces a bigger result is the accrual one - arrears already offered in an earlier year being taken out of the receipt year altogether - but it succeeds only where the earlier returns actually show them. Nothing here is won against the employer.
