Section 157 of the Income Tax Act, 2025 provides relief where the total income of an assessee is assessed at a rate higher than the rate at which it would otherwise have been assessed, due to the receipt of salary in arrears or in advance, gratuity, or compensation. Rule 73 of the Income Tax Rules, 2026 prescribes the detailed computation method. Understanding this method is essential for taxpayers and practitioners.
The Statutory Framework
Section 157: Relief When Salary, etc., is Paid in Arrears or in Advance
Section 157 provides that where the total income of an assessee is assessed at a rate higher than the rate at which it would otherwise have been assessed, due to the following receipts:
- A sum in the nature of arrear or advance salary
- Salary for more than twelve months in any one tax year
- A payment in the nature of "profits in lieu of salary"
- Arrears of "family pension"
The Assessing Officer shall, on application, grant such relief as may be prescribed.
Rule 73: Relief Computation
Rule 73 prescribes the detailed computation method for different types of receipts.
Relief Computation Methods
Type 1: Additional Salary or Additional Family Pension in Arrears or Advance
Relief = A − B, if A exceeds B
Where:
- A = C − D
- B = Aggregate of E
- E = F − G
Steps:
Step 1: Ascertain the tax years to which the additional salary or additional family pension relates and the amount relating to each such tax year.
Step 2: Calculate A = C − D
- C = Tax on total income of the relevant tax year
- D = Tax on total income, as reduced by the additional salary or additional family pension, as if the total income so reduced were the total income of the relevant tax year
Step 3: Calculate E = F − G for each tax year
- G = Tax payable in respect of the total income of each tax year
- F = Tax payable on the total income of such tax year as increased by the amount relating to such tax year
Step 4: Calculate B = Aggregate of E for all tax years
Type 2: Gratuity (5-15 Years Service)
Relief = G × (R1 − RAvg), if R1 exceeds RAvg
Where:
- G = Gratuity received in the relevant tax year
- R1 = Average rate of tax on the total income including gratuity amount received in Y1
- RAvg = (R2 + R3)/2
- R2 = Average rate of tax on the total income for Y2 as increased by one-half of the gratuity received
- R3 = Average rate of tax on the total income for Y3 as increased by one-half of the gratuity received
- Y1 = Relevant tax year
- Y2 = Tax year immediately preceding Y1
- Y3 = Tax year immediately preceding Y2
Type 3: Gratuity (15+ Years Service)
Relief = G × (R1 − RAvg), if R1 exceeds RAvg
Where:
- G = Gratuity received in the relevant tax year
- R1 = Average rate of tax on the total income including gratuity amount received in Y1
- RAvg = (R2 + R3 + R4)/3
- R2 = Average rate of tax on the total income for Y2 as increased by one-third of the gratuity received
- R3 = Average rate of tax on the total income for Y3 as increased by one-third of the gratuity received
- R4 = Average rate of tax on the total income for Y4 as increased by one-third of the gratuity received
- Y1 = Relevant tax year
- Y2 = Tax year immediately preceding Y1
- Y3 = Tax year immediately preceding Y2
- Y4 = Tax year immediately preceding Y3
Type 4: Compensation on Termination (3+ Years Service)
Relief = C × (R1 − RAvg), if R1 exceeds RAvg
Where:
- C = Compensation amount received in the relevant tax year
- R1 = Average rate of tax on the total income including compensation amount received in Y1
- RAvg = (R2 + R3 + R4)/3
- R2 = Average rate of tax on the total income for Y2 as increased by one-third of the compensation amount received
- R3 = Average rate of tax on the total income for Y3 as increased by one-third of the compensation amount received
- R4 = Average rate of tax on the total income for Y4 as increased by one-third of the compensation amount received
Type 5: Commutation of Pension
Relief = P × (R1 − RAvg), if R1 exceeds RAvg
Where:
- P = Amount of commutation of pension
- R1 = Average rate of tax on the total income including amount of commutation of pension received in Y1
- RAvg = (R2 + R3 + R4)/3
- R2 = Average rate of tax on the total income for Y2 as increased by one-third of the amount of commutation of pension received
- R3 = Average rate of tax on the total income for Y3 as increased by one-third of the amount of commutation of pension received
- R4 = Average rate of tax on the total income for Y4 as increased by one-third of the amount of commutation of pension received
Form 39: Filing Requirements
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).
Where the assessee is a Government servant or an employee in a company, co-operative society, local authority, university, institution, association, or body, he may furnish the particulars specified in Form No. 39 to the person responsible for making the payment.
Practical Example: Gratuity Relief
Scenario:
- Gratuity received: Rs. 5,00,000
- Relevant tax year (Y1) total income: Rs. 10,00,000
- Y2 total income: Rs. 8,00,000
- Y3 total income: Rs. 7,00,000
Step 1: Calculate R1 = Tax on Rs. 15,00,000 / Rs. 15,00,000
Step 2: Calculate R2 = Tax on (Rs. 8,00,000 + Rs. 2,50,000) / (Rs. 8,00,000 + Rs. 2,50,000)
Step 3: Calculate R3 = Tax on (Rs. 7,00,000 + Rs. 2,50,000) / (Rs. 7,00,000 + Rs. 2,50,000)
Step 4: RAvg = (R2 + R3)/2
Step 5: Relief = Rs. 5,00,000 × (R1 − RAvg)
Expert Legal Guidance
Understanding the Section 157 relief computation is essential for taxpayers receiving salary arrears, gratuity, or compensation. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping taxpayers compute relief correctly and ensure compliance with filing requirements.