Rule 73Published

Rule 73: Relief on salary arrears and retirement receipts

Rule 73 calculates relief under section 157(1) where specified receipts cause income to be assessed at a higher rate. It distinguishes salary or family-pension arrears, different gratuity periods, qualifying termination compensation and pension commutation.

Official notified Income-tax Rules, 2026

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On this page

Bare law
Select the correct receipt category
Salary and family-pension arrears: compare the extra tax
Gratuity: distinguish the service periods
Termination compensation and commuted pension
Example of the positive-difference test
Form 39 and payment-side reporting
Other receipts and supporting records
Key takeaways
Practical checklist
FAQs
Glossary
Official sources

Bare law

Rule 73 - Relief under section 157(1), when salary is paid in arrears or in advance, gratuity, etc
(1) Where, the total income of an assessee for any tax year (referred to as the relevant tax year in this rule) is assessed at a rate higher than the rate at which it would otherwise have been assessed, on account of receipts in relevant tax year as specified in column B of the following Table, the relief admissible under section 157(1) shall be as specified in column C thereof:
Sl.No. Receipts Relief
1. Any portion of salary received in arrears or in advance or, any portion of family pension received in arrears (herein referred to as the ―additional salary‖ or ―additional family pension‖, as the case may be). Relief = A-B, if A exceeds B, where – A=C-D; B=Aggregate of E; E=F-G and the computation of relief shall be carried out in the following steps. Step-1: Where the additional salary or additional family pension relates to one or more tax years, the tax years to which the additional salary or additional family pension relates and the amount relating to each such tax year shall first be ascertained. Step 2: Calculate A=C-D, Where,– 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; and A = tax on the additional salary or additional family pension for the relevant tax year. Step-3: Calculate E = F - G, Where,– G = tax payable in respect of the total income of each tax year ascertained in Step-1; F= tax payable on the total income of such tax year as increased by the amount relating to such tax year as ascertained in Step-1, as if the total income so increased were the total income of that tax year; and E= tax on the additional salary or additional family pension for each tax year ascertained in Step-1. Step-4: B = aggregate of tax on the additional salary or additional family pension. Calculate ―B‖ to be the total of tax on the additional salary or additional family pension, which was ascertained as E in Step 3 for all tax years ascertained in Step 1.
2. Gratuity received in respect of past services extending over a period of greater than or equal to five years but less than fifteen years. Relief = G x (R1-RAvg), if R1 exceeds R Avg 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, as if the income so increased were the total income of that tax year R3= average rate of tax on the total income for Y3 as increased by one-half of the gratuity received, as if the income so increased were the total income of that tax year; Y1 = relevant tax year, Y2= tax year immediately preceding Y1, and Y3 = tax year immediately preceding Y2.
3. Gratuity received in respect of past services extending over a period of not less than fifteen years. Relief = G x (R1-RAvg), if R1 exceeds R Avg. 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, as if the income so increased were the total income of that tax year R3= average rate of tax on the total income for Y3 as increased by one-third of the gratuity received, as if the income so increased were the total income of that tax year; R4= average rate of tax on the total income for Y4 as increased by one-third of the gratuity received, as if the income so increased were the total income of that tax year; Y1 = relevant tax year; Y2 = tax year immediately preceding Y1; Y3 = tax year immediately preceding Y2; and Y4 = tax year immediately preceding Y3.
4. Compensation received from the employer or the former employer at or in connection with the termination of employment after continuous service for not less than three years and where the unexpired portion of term of employment is also not less than three years Relief = C x (R1-RAvg), if R1 exceeds R Avg. 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, as if the income so increased were the total income of that tax year; R3= average rate of tax on the total income for Y3 as increased by one-third of the compensation amount received, as if the income so increased were the total income of that tax year; and R4= average rate of tax on the total income for Y4 as increased by one-third of the compensation amount received, as if the income so increased were the total income of that tax year; Y1 = relevant tax year, Y2 = tax year immediately preceding Y1, Y3 = tax year immediately preceding Y2, and Y4 = tax year immediately preceding Y3
5. Commutation of pension received Relief = P x (R1-RAvg), if R1 exceeds R Avg. 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, as if the income so increased were the total income of that tax year; R3= average rate of tax on the total income for Y3 as increased by one-third of the amount of commutation of pension received, as if the income so increased were the total income of that tax year; and R4= Average rate of tax on the total income for Y4 as increased by one-third of the amount of commutation of pension received, as if the income so increased were the total income of that tax year; Y1 = relevant tax year; Y2 = tax year immediately preceding Y1; Y3 = tax year immediately preceding Y2; and Y4 = tax year immediately preceding Y3.
(2) In case of any other receipts, the Board may, having regard to the circumstances of the case, allow such relief as it deems fit.
(3) 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).
(4) Where the assessee, being a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body, is entitled to relief under section 157(1), he may furnish the particulars specified in Form No. 39 to the person responsible for making the payment referred to in section 392(1).

Sl.No.	Receipts	Relief
1.	Any portion of salary received in arrears or in advance or, any portion of family pension received in arrears (herein referred to as the ―additional salary‖ or ―additional family pension‖, as the case may be).	Relief = A-B, if A exceeds B, where – A=C-D; B=Aggregate of E; E=F-G and the computation of relief shall be carried out in the following steps. Step-1: Where the additional salary or additional family pension relates to one or more tax years, the tax years to which the additional salary or additional family pension relates and the amount relating to each such tax year shall first be ascertained. Step 2: Calculate A=C-D, Where,– 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; and A = tax on the additional salary or additional family pension for the relevant tax year. Step-3: Calculate E = F - G, Where,– G = tax payable in respect of the total income of each tax year ascertained in Step-1; F= tax payable on the total income of such tax year as increased by the amount relating to such tax year as ascertained in Step-1, as if the total income so increased were the total income of that tax year; and E= tax on the additional salary or additional family pension for each tax year ascertained in Step-1. Step-4: B = aggregate of tax on the additional salary or additional family pension. Calculate ―B‖ to be the total of tax on the additional salary or additional family pension, which was ascertained as E in Step 3 for all tax years ascertained in Step 1.
2.	Gratuity received in respect of past services extending over a period of greater than or equal to five years but less than fifteen years.	Relief = G x (R1-RAvg), if R1 exceeds R Avg 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, as if the income so increased were the total income of that tax year R3= average rate of tax on the total income for Y3 as increased by one-half of the gratuity received, as if the income so increased were the total income of that tax year; Y1 = relevant tax year, Y2= tax year immediately preceding Y1, and Y3 = tax year immediately preceding Y2.
3.	Gratuity received in respect of past services extending over a period of not less than fifteen years.	Relief = G x (R1-RAvg), if R1 exceeds R Avg. 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, as if the income so increased were the total income of that tax year R3= average rate of tax on the total income for Y3 as increased by one-third of the gratuity received, as if the income so increased were the total income of that tax year; R4= average rate of tax on the total income for Y4 as increased by one-third of the gratuity received, as if the income so increased were the total income of that tax year; Y1 = relevant tax year; Y2 = tax year immediately preceding Y1; Y3 = tax year immediately preceding Y2; and Y4 = tax year immediately preceding Y3.
4.	Compensation received from the employer or the former employer at or in connection with the termination of employment after continuous service for not less than three years and where the unexpired portion of term of employment is also not less than three years	Relief = C x (R1-RAvg), if R1 exceeds R Avg. 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, as if the income so increased were the total income of that tax year; R3= average rate of tax on the total income for Y3 as increased by one-third of the compensation amount received, as if the income so increased were the total income of that tax year; and R4= average rate of tax on the total income for Y4 as increased by one-third of the compensation amount received, as if the income so increased were the total income of that tax year; Y1 = relevant tax year, Y2 = tax year immediately preceding Y1, Y3 = tax year immediately preceding Y2, and Y4 = tax year immediately preceding Y3
5.	Commutation of pension received	Relief = P x (R1-RAvg), if R1 exceeds R Avg. 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, as if the income so increased were the total income of that tax year; R3= average rate of tax on the total income for Y3 as increased by one-third of the amount of commutation of pension received, as if the income so increased were the total income of that tax year; and R4= Average rate of tax on the total income for Y4 as increased by one-third of the amount of commutation of pension received, as if the income so increased were the total income of that tax year; Y1 = relevant tax year; Y2 = tax year immediately preceding Y1; Y3 = tax year immediately preceding Y2; and Y4 = tax year immediately preceding Y3.

Rule breakdown

Select the correct receipt category

The table provides different methods for salary in arrears or advance, family-pension arrears, gratuity for the stated service periods, qualifying termination compensation and commutation of pension.

Classify the receipt and determine its relevant taxable treatment under the Act first. Relief should not be assumed merely because a payment is large or relates to past employment.

Salary and family-pension arrears: compare the extra tax

For the first row, determine the tax increase in the receipt year caused by the additional amount. Then allocate the amount to the tax years to which it relates and calculate the aggregate increase in tax for those years.

Relief is the receipt-year increase minus the aggregate earlier-year increase only if the first exceeds the second. The formula requires actual year-specific computations, not simply multiplying arrears by one current slab rate.

Gratuity: distinguish the service periods

For service of at least five but less than fifteen years, the row compares the receipt-year average rate with the average of the two preceding years after adding half the gratuity to each. For service of at least fifteen years, it uses the three preceding years with one-third added to each.

The relief is the gratuity multiplied by the positive difference in the specified average rates. Do not use the two-year calculation for the fifteen-year-or-more category.

Termination compensation and commuted pension

The termination-compensation row requires continuous service of at least three years and an unexpired employment term of at least three years. It uses the stated three-prior-year average-rate method.

The pension-commutation row also specifies its three-prior-year comparison. Preserve the correct receipt amount and the row-specific definitions in each working.

Example of the positive-difference test

Hypothetical: salary arrears increase receipt-year tax by ₹30,000, while the aggregate tax increases calculated for the years to which the arrears relate are ₹22,000. The first-row formula gives ₹8,000 relief.

If the first amount does not exceed the second, that formula gives no positive relief. The example assumes the receipt and tax computations meet the applicable statutory conditions.

Form 39 and payment-side reporting

The particulars must be furnished in Form No. 39 by the return due date referred to in the notified rule. Check the current amended section 263 deadline and official filing procedure for the relevant taxpayer.

The specified employee categories may also furnish Form 39 particulars to the person responsible for the payment under section 392(1). Keep the relief computation and the information furnished to the payer consistent.

Other receipts and supporting records

For other receipts, the Board may allow relief as it considers fit in the circumstances; that is not an automatic application of one of the table rows.

Retain employer or pension statements, year allocation, prior-year income and tax workings, service-period evidence, Form 39 and acknowledgment.

Key takeaways

Category-specific method

The table has five distinct receipt categories.

Compare taxes or average rates

Use the method and prior-year period in the relevant row.

Positive difference required

The listed formulae grant relief only when the stated comparison is positive.

Form 39

File the particulars and reconcile any payer-side information.

Practical checklist

Identify the receipt category and relevant service period.
Prepare the required year-by-year calculations.
Retain supporting statements and Form 39 filing evidence.

Avoid

Do not mix the two-year and three-year gratuity methods.
Do not claim a negative or zero comparison as positive relief.

FAQs

Is relief simply arrears multiplied by the current tax rate?

No. The salary-arrears method compares the receipt-year extra tax with the aggregate extra tax for the years concerned.

Does every termination payment fit row 4?

No. The row includes both the minimum continuous-service and unexpired-term conditions.

Which form records the particulars?

Form No. 39.

Does the Board’s other-receipt provision automatically grant relief?

No. Sub-rule (2) gives the Board discretion based on the circumstances.

Glossary

Relevant tax year: The receipt year described in Rule 73(1).
Average-rate comparison: The row-specific comparison of receipt-year and adjusted prior-year average tax rates.
Form 39: The prescribed particulars for section 157(1) relief.