How salary arrears are worked out, and how they are taxed
How to work out salary arrears month by month from pay drawn and pay due, what counts in the difference, how to check an arrears statement, and how tax relief spreads arrears back to earlier years.
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In short
- Arrears = (pay due − pay actually received) × the number of months owed.
- With a basic of ₹50,000 at 60 percent DA paid and ₹52,000 at 63 percent due, the gap is ₹4,760 a month, or ₹28,560 over six months.
- DA is paid on basic, so a change in basic pay changes the DA too. Compare the totals, not just the basic.
- If basic or DA changed during the period, work out each stretch separately and add them up.
- Arrears are taxed in the year received, but relief can spread them back to the years they belong to.
Arrears are money you were owed earlier and are being paid now. In a government office, they usually follow a late DA order, a backdated promotion, a pay fixation or a pay commission. In a private company, they may follow a backdated raise. The amount is often more than people expect, and the statement from the accounts office can be hard to follow. This page shows the sum, how to work through a period in which pay changed, and how arrears are treated for tax, which is where a useful relief is often missed.
The basic sum
Arrears are the difference between what you should have received and what you did receive, for each month owed.
monthly pay = basic pay × (1 + DA rate ÷ 100)
arrears = (pay due − pay received) × months
Take someone paid a basic of ₹50,000 with DA at 60 percent, whose correct pay was a basic of ₹52,000 with DA at 63 percent.
- Pay received: 50,000 × 1.60 = ₹80,000 a month.
- Pay due: 52,000 × 1.63 = ₹84,760 a month.
- Difference: ₹4,760 a month.
- Over six months: ₹28,560.
Notice that the basic rose by only ₹2,000, and yet the monthly gap is more than twice that. DA is a percentage of basic, so a change in either one moves the total. That is why you must compare whole pay and not just the basic.
What goes into the difference
The calculator takes basic and DA, and a box for any other monthly difference. Use that box for items that also changed:
- House Rent Allowance. HRA is a percentage of basic, so a higher basic means a higher HRA. A rise of ₹2,000 in basic at the Y city rate of 20 percent adds ₹400 a month.
- Transport allowance. TA may change if your pay level changes, and DA is also paid on it.
- Other allowances. Items such as nursing, risk or special allowances may be linked to pay level.
- Deductions on the arrears. NPS contributions, and sometimes GPF and income tax, come out of the arrears, so the amount in your bank will be less than the gross figure.
Arrears do not normally carry interest. There are exceptions, such as where a court orders it.
When pay changed during the period
The single sum above works when nothing changed in the months owed. Long periods need dividing up. Suppose a promotion was backdated to 1 January, with a rise in DA on 1 July and an annual increment on the same date. You would treat January to June as one stretch, and July onwards as another.
| Period | Months | Pay received | Pay due | Difference | Arrears |
|---|---|---|---|---|---|
| Jan to Jun | 6 | ₹80,000 | ₹83,200 | ₹3,200 | ₹19,200 |
| Jul to Oct | 4 | ₹83,945 | ₹87,368 | ₹3,423 | ₹13,692 |
| Total | 10 | ₹32,892 |
From January, the person received a basic of ₹50,000 at 60 percent when ₹52,000 was due. From July, the basic rose to ₹51,500 received against ₹53,600 due, with DA at 63 percent. Run the calculator once for each stretch and add up the totals, using the exact amounts from your own slips.
Checking your arrears statement
Accounts offices usually issue a "due and drawn" statement. It has one line per month, showing what was due, what was drawn, and the difference. To check it:
- Take your old pay slips for the period.
- Confirm the date from which the new pay applies, from the order.
- Check that each month's DA rate is the one in force that month.
- Check any annual increment, which on the central pattern falls on 1 January or 1 July.
- Add the differences and compare the total with the amount on the statement.
- Check that NPS or GPF deductions on the arrears are shown properly.
If something differs, ask your drawing officer for the working, and quote the order number and date. Most differences come from an increment date or a missed month.
Types of arrears
DA arrears. The simplest case, where only the rate changes. The DA calculator does this directly.
Pay commission arrears. When a new pay matrix applies from an earlier date, arrears can cover many months. The 8th Pay Commission calculator shows how the new basic might be set.
Promotion and MACP. A backdated promotion or financial upgrade re-fixes pay in a higher level from the date given in the order.
Pension arrears. Pensioners get arrears when Dearness Relief rises or pension is revised, as the pension calculator explains.
Private company raises. If a raise is backdated, the same sum applies. The gap between old and new monthly salary is multiplied by the months. Some items such as employer PF are affected too.
How arrears are taxed
Arrears count as salary in the year you receive them, even though they relate to an earlier year. A large payment can push you into a higher slab, so you may pay more tax than if it had been paid on time.
The law gives relief for this. It has long been known as relief under Section 89(1), and it carries on under the Income-tax Act, 2025. The idea is simple. Tax is worked out for this year with and without the arrears, and for each earlier year with and without its share of them. If the extra tax this year is more than the extra tax would have been in those years, the difference is given as relief.
Suppose arrears of ₹3,00,000 belong to a year when your top rate was 10 percent, and they arrive in a year when your top rate is 30 percent. Before cess, tax on them is about ₹90,000 now, against about ₹30,000 back then. The relief is about ₹60,000. This is only an illustration, since the real result depends on your income in each year and the slabs that applied.
To claim it, you file Form 10E, or any form that replaces it, on the income tax e-filing portal before you file your return. Without this filing, the tax department may not allow the relief in your return. Your employer can sometimes account for the relief in TDS, but the form must still be filed by you.
Note that the old and new tax regimes both matter here, because the earlier year's sum uses the rules of that year. The income tax calculator helps with the yearly figures, and for anything large, a tax professional can check the form.
Planning for a lump sum
A lump sum of arrears is easy to spend, as it does not feel like regular pay. Check the tax first, because TDS on it may be less than the final tax due. If there is a gap, you may have to pay it yourself. Those with substantial other income should check the advance tax calculator. The rest may be useful for paying off expensive debt or adding to savings.
What this calculator assumes
- Basic pay and DA stay the same throughout the months entered. Run it again for each stretch if they changed.
- DA is a percentage of basic pay.
- The other monthly difference is added as you enter it, and has no DA added.
- The result is the gross amount, before NPS, GPF, income tax or any other deduction.
- It does not work out relief under Section 89 or interest, and your department's order is the final word.