Salary arrears are pay you were owed for an earlier period but received later. The most common cause is a backdated increment: your revision is approved in July but effective from April, so three months of the difference is paid as arrears in the July salary. Promotions, delayed pay revisions, wage settlements and corrected underpayments all produce arrears the same way.

How arrears are calculated

Arrears are simply the gap between what you should have been paid and what you actually were, for each affected month, added together.

Say your salary was revised from Rs 60,000 to Rs 70,000 a month with effect from 1 April, but the revision is processed in July. The difference is Rs 10,000 a month for April, May and June, so Rs 30,000 of arrears is paid in July, on top of the new Rs 70,000. Statutory components such as PF are usually recomputed on the arrear wages too.

The tax angle: Section 89(1)

Arrears are taxed in the year you receive them, which can push you into a higher slab even though the money relates to earlier years. Section 89(1) gives relief: you recompute tax as if the arrears had been taxed in the years they were actually for, and claim the difference. It is claimed by filing Form 10E before your return. Employers often factor it into TDS if you submit Form 10E to them.

Frequently asked questions

Are arrears subject to PF and professional tax?

PF is generally recalculated on arrear wages. Professional tax follows the slab for the month the arrears are paid in.

Do I have to claim Section 89(1) relief?

It is optional, but it almost always reduces tax when arrears span more than one year. You must file Form 10E to claim it.

Is a bonus paid late the same as arrears?

Not for Section 89 purposes unless it clearly relates to an earlier year. Ordinary annual bonus is taxed in the year of receipt.

Work out an arrears figure with the Arrears Calculator, and see how a revision changes your run-rate with the Salary Increment Calculator.